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Chapter 12: Reorganization

Chapter 12 started to grab headlines starting 2019 as the Trump Administration Waged trade wars primarily with China. The move negatively impacted the US agricultural industry. As family farms struggled, the Chapter 12 US Bankruptcy Code gained wide coverage in the media lexicon.

Chapter 12 is designed for "family farmers" or "family fishermen" with "regular annual income." It enables financially distressed family farmers and fishermen to propose and carry out a plan to repay all or part of their debts. Under chapter 12, debtors propose a repayment plan to make installments to creditors over three to five years. But unless the plan proposes to pay 100% of domestic support claims (i.e., child support and alimony) if any exist, it must be for five years and must include all the debtor's disposable income. In no case may a plan provide for payments over a period longer than five years.

Chapter 12 is more streamlined, less complicated, and less expensive than chapter 11, which is better suited to large corporate reorganizations. In addition, few family farmers or fishermen find chapter 13 to be advantageous because it is designed for wage earners who have smaller debts than those facing family farmers. In chapter 12, Congress sought to combine the features of the Bankruptcy Code which can provide a framework for successful family farmer and fisherman reorganizations.

Similar to Chapter 11, Filing the petition under Chapter 12 "automatically stays" (stops) most collection actions against the debtor or the debtor's property. As long as the stay is in effect, creditors generally cannot initiate or continue any lawsuits, wage garnishments, or even telephone calls demanding payments.

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