Bankruptcy Alphabet-F is for Family Farmer/Fisherman

There are various bankruptcy chapters for individuals, corporations and even municipalities (cities, counties, natural resource districts, etc), but a Chapter 12 bankruptcy is the only type specifically for Family Farmers or Fisherman.

               F is for Family Farmer

Photo by Freshlabs

For the remainder of this blog I will be referencing family farmers since I practice in Nebraska and don’t have commercial fishing (sorry, no coasts), but just remember Chapter 12 pertains to family fisherman as well.

Why are farmers so special?

Farmers are in a unique situation than most debtors. Unlike individual debtors who can file Chapter 13, farmers carry a substantial amount of secured debt. Chapter 13 has debt limits (unsecured debt of less than $360,475 and secured debt less than $1,081,400 as of 2011) which prevent most farmers from filing in that chapter, which would force those farmers into Chapter 11 business reorganization. Why is that so bad? Well, although the farmers have a significant amount of secured debt, they don’t have the resources for the extra fees that are involved with a Chapter 11. A Chapter 7 liquidation is not an option for the family farmer who wants to continue operating the farm business.

Congress changed the bankruptcy law in 1986 to create Chapter 12 which essentially streamlined the bankruptcy process for family farmers.

Chapter 12 is very similar to a Chapter 13. A plan is proposed that lasts anywhere from 36 to 60 months and is amenable to the seasonal nature of farming.

You just can’t be any farmer to be eligible for Chapter 12. If an individual or married couple, the eligibility requirements are as follows:

  • The individual or married couple must be engaged in the farming operation.
  • The total debt (both secured and unsecured debt) must be less than $3,792,650 as of 2011. (Less for family fisherman).
  • 50% of the total debt, exclusive of the debtor’s home, must be related to the farming operation. For family fisherman, this amount is 80%.
  • More than 50% of the gross income of the individual or married couple must have come from the farming operation.

For corporate or partnership farm operations, the eligibility requirements are as follows:

  • More than 50% of the stock or equity in the company must be owned by one family or by one family and its relatives.
  • The family or the family and its relatives must conduct the farming operation.
  • The total debt (both secured and unsecured) must be less than $3,792,650. Less for family fisherman).
  • At least 50% of the company’s total debt, exclusive of the debt for one home occupied by a shareholder, must be related to the farming operation.
  • If the corporation issues stock, it cannot be publicly traded.

Chapter 12 is an important tool to help family farmers keep the farming operation while dealing with the debt it has accrued. Consult with an competent bankruptcy attorney in Chapter 12 to determine whether your farming operation qualifies.

Other Bankruptcy Attorneys talking about the Letter F are as follows:

Future Flow Agreement-New York Bankruptcy Attorney Jay S. Fleischman
First-Northern California Bankruptcy Lawyer, Cathy Moran

Bankruptcy Alphabet-E is for Exemptions

The thought of liquidating your assets in a Chapter 7 Bankruptcy sounds very scary. Do I lose my house? Where do I live? Do I lose my car? How do I get to work? What about my retirement? And more importantly, what about my clothes?!

Luckily, the federal government, or in some cases your state legislature, has decided that those who file for bankruptcy protection, need some property in order to continue being productive members of society. That’s where bankruptcy exemptions come into play.

E is for Exemptions.

Photo by Poppy Thomas-Hill

Bankruptcy exemptions allow a debtor to keep certain property that the government believes is necessary to gain a fresh start. There are two sets of exemptions:

1) those provided by Congress, known as the federal exemptions;

or

2) those provided by the State legislature that you reside in, if they have opted out of the federal exemptions.

Since Nebraska, the jurisdiction that I practice, has opted out of the federal exemptions, I have supplied the basic list of those that normally apply to most cases:

  • Homestead Exemption: Allows the protection of up to $60,000 in equity in a residence for a head of household or unmarried over 65 years of age. Neb. Rev. Stat. §40-101
  • Tools of the Trade: Allows the protection of up to $2,400.00 in tools or supplies used for work, including a vehicle used to commute to work. Can be doubled on a joint petition for a spouse who also works. Neb. Rev. Stat. §25-1556
  • Immediate Personal Possessions: Allows for the full protection of personal property which has extreme personal value. Although not defined, I have viewed this exemption to protect wedding rings and family pets. Neb. Rev. Stat. §25-1556
  • Furniture/Household Goods: Allow for the protection of up to $1,500 in value of furniture and household goods. Can be doubled for a joint petition. Neb. Rev. Stat. §25-1556
  • Personal Injury Settlements: Allows for the protection of lump-sum or structured payments, including interest, from an award from a personal injury. Neb. Rev. Stat. §25-1563.02 The protection also applies to Worker’s Compensation awards. Neb. Rev. Stat. §48-149
  • Life Insurance: Allows the protection of up to $10,000 cash value from life insurance policies or up to $100,000 in life insurance benefits. Neb. Rev. Stat. §44-371. There are some qualification requirements. Speak to your Nebraska Bankruptcy Attorney for more information.
  • Retirement/Pension: Allows the protection of retirement or pension programs that are reasonably necessary to for the support of debtor and their dependents and if they are qualified programs under the Internal Revenue Code. Neb. Rev. Stat. §25-1563.01
  • Tax Refund: Allows for the protection of the portion of state and federal tax refunds that are refunded due to the earned income tax credit for low income workers. Neb. Rev. Stat. §25-1553
  • Wild Card: Allows for the protection of any personal property up to a value of $2,500. Can be doubled in joint petition cases. Neb. Rev. Stat. §25-1552

The Bankruptcy Exemptions are a powerful tool for the Debtor to use to maximize the protection of property from liquidation through the bankruptcy process.

Other Bankruptcy Attorneys talking about the Letter E are the following:

Bankruptcy Alphabet-D is for Deconsolidate

Married couples are the only entities allowed to file a joint bankruptcy petition. When a couple files a Chapter 13 bankruptcy another D word sometimes enters the equation which may cause one of the parties to seek a motion to deconsolidate their bankruptcy case. That other D word is “divorce”.

D is for Deconsolidate.
Photo by Poppy Thomas-Hill

I’m not a fan of the term “deconsolidate”. Not because of the negative connotation, but because it just sounds like really bad English. In fact, according to dictionary.com and my own spell-checker, it is not even a word.

I have heard attorneys in the South use the term “sever” which, although sounds painful, is better than “deconsolidate”. I’ve always used the term “bifurcate“, which means to divide into two sections. It sounds better because that is exactly what happens when a party files a motion to deconsolidate.

The Bankruptcy Court can deconsolidate, or divide a joint case, into two individual cases that would continue until the conclusion of each case.

Why would a party want to deconsolidate?

  • Divorce-the parties want their separated lives further separated by splitting a bankruptcy case that continues to hold them together.
  • If the reason the parties initially filed for Chapter 13 was because one spouse didn’t qualify for Chapter 7 (had too much income, filed a previous Chapter 7 within 8 years, non-dischargeable debt), then deconsolidation would allow the other spouse to convert to Chapter 7 and end his/her bankruptcy more quickly.
  • One of the spouses wants the bankruptcy case dismissed.
-Ryan D. Caldwell is a Omaha and Lincoln, Nebraska Bankruptcy Attorney and strives to provide clients with compassionate legal care in areas of bankruptcy, family law, creditor’s rights, estate planning, and probate.

Other Bankruptcy Lawyers talking about the Letter D are as follows:

 

Bankruptcy Alphabet-C is for Conversion

I could have gone with more popular C words like “Confirmation”, “Chapter” or “Creditor”, but I thought the other bankruptcy attorneys following this alphabet game would strike at those and I want to try and find the non-obvious or unpopular terms.

C is for Conversion.

Photo by Poppy Thomas-Hill

Bankruptcy cases can be converted from one chapter to another for several reasons.

In Chapter 7 Bankruptcy, the debtor almost has an absolute right to convert his case to any other chapter of the Bankruptcy Code as long as the debtor is eligible and meets the requirements for the proposed converting chapter. 11 U.S.C. §706.

Why would a debtor want to convert their case from Chapter 7 to a different chapter? There is a variety of reasons:


Chapter 11 reorganization cases can be converted to chapter 7 pursuant to 11 U.S.C. §1112(a). A business could do this if they are the debtor in possession and they intend to liquidate the business. Cases can be converted to Chapter 12 or Chapter 13 if requested by the Debtor and the Debtor has not received a discharge of debt. 11 U.S.C. §1112(d).
Family Farmers in a Chapter 12 casehave an absolute right to convert their case to Chapter 7 “at any time”. 11 U.S.C. §1208(a). A broad reading of 11 U.S.C. §1208(e) may allow for the conversion of a Chapter 12 case to any other chapter of bankruptcy as long as the debtors meet the eligibility requirements for that chapter.

Finally, Chapter 13 debtors have an absolute right to convert their case to Chapter 7 “at any time”. 11 U.S.C. §1307(a). Chapter 13 cases can be converted to Chapter 11 or Chapter 12 if the debtors meet the eligibility requirements for that chapter and a Chapter 13 bankruptcy plan has not yet been confirmed. 11 U.S.C. §1307(d).

Why would a Chapter 12 or Chapter 13 debtor want to convert to Chapter 7?

  • Circumstances may have changed that no longer make it possible for the debtor to commit to a plan.
  • Debtor no longer wants to protect certain property from liquidation.
  • Debtor may have satisfied paying secured creditors under the plan and decide to discharge the remainder of debt under Chapter 7.

Conversion of cases happens a lot. Bankruptcy cases always seem to be in flux and it requires a qualified bankruptcy attorney to analyze and advise the best course of action.

Ryan D. Caldwell is a Omaha and Lincoln, Nebraska Bankruptcy Attorney and strives to provide clients with compassionate legal care in areas of bankruptcy, family law, creditor’s rights, estate planning, and probate.

Other Bankruptcy Lawyers talking about the Letter C are as follows:

 

Bankruptcy Alphabet-B is for Business

Generally,
bankruptcy cases are a little more difficult and time consuming when
the debtor has a business, or even more so, when the business is the
debtor.

Photo by Poppy Thomas-Hill

                      B is for Business.

Photo by Poppy Thomas-Hill

Let’s start with the business as a debtor. The Bankruptcy Code allows businesses, as its own entity, to file either aChapter 7 Liquidation11. U.S.C. §109(b)-or a Chapter 11 Reorganization –11 U.S.C. §109(d).

This blog is beyond the scope of what happens to a business in a Chapter 11 case, but basically, as the sub-title alludes, a business is reorganized which may incorporate a plan to pay creditors through future income, through takeover by acquisition or through creditor ownership. Recent big name Chapter 11 bankruptcy cases involve Blockbuster Video and Major League Baseball’s Los Angeles Dodgers franchise.

In a chapter 7, a business is liquidated; either sold entirely, sold part by part, or abandoned if there is no significant property of the business. A recent large business Chapter 7 Bankruptcy case was Metromedia Restaurant Group, the parent company of Bennigan’s Restaurants.

Individual Debtors who own or have an interest in businesses can be problematic and a great amount of planning needs to go into whether to file a chapter 7 bankruptcy.

Generally, it is best to file a chapter 13 bankruptcy if the debtor owns a small business that he/she wants to resume operating that has a significant amount of property to conduct the business or is entitled to a significant amount of accounts receivables. If a chapter 7 were filed, those assets that are used for operating the business may be liquidated and sold.

A chapter 7 may be a good option for a business owner who doesn’t possess significant assets to run the business. An example may be a small landscaper with only a vehicle and regular lawnmower, a painter with only small tools of the trade, or a daycare operator who uses her home.

If you have a business and think bankruptcy may be the option for you, you should contact an attorney to review how best to plan and determine which chapter of bankruptcy is right for you.

Other Bankruptcy Lawyers talking about the Letter B are as follows:

 

the bankruptcy alphabet brought to you by the letter a

Bankruptcy Alphabet-A is for Automatic Stay

New York Bankruptcy Attorney, Jay S. Fleischman, has began a series of blog entries entitled “From A to Z in the Bankruptcy Alphabet” and has thrown down the gauntlet for other bankruptcy attorneys to follow suit.

This series of blog posts will briefly focus on a bankruptcy term, give a short definition, and, if applicable, give an example of how the term may work.

So we start with A-

Photo by Poppy Thomas-Hill

A is for “Automatic Stay”. The Automatic Stay is an important aspect of bankruptcy law because it prohibits various activities against the debtor and the property of the bankruptcy estate. A “stay” is also called an injunction, which is a court order preventing a party to do a certain action. What makes the automatic stay so awesome is that it is automatically imposed upon the filing of the bankruptcy petition. No court order is necessary, because it goes into effect the second your attorney presses the file button.

11 U.S.C. §362 describes what the automatic stay is, what activities are prohibited and which are exempt. when the stay terminates, what happens by violating the automatic stay.

The following is a brief list of those activities that are prohibited:

  • Enforcement of pre-petition Judgments-§362(a)(2)
  • Exercising control over property of the estate-§362(a)(3)
  • Creating or Enforcing a Lien on property of the estate-§362(a)(4),(5)
  • Collection of pre-petition debt-§362(a)(6)
  • Setoff of Debt-§362(a)(7)

The following are activities that are not prohibited:

  • Criminal actions-§362(b)(1)
  • Cases regarding paternity and child support-§362(b)(2)
  • Tax Assessments-§362(b)(9)
  • Expired Leases on Non-Residential Property-§362(b)(10)
  • Retirement Account Loan Repayment-§362(b)(19)
  • A setoff of an income tax refund by governmental unit-§362(26)

The automatic stay terminates when the following happens:

The Bankruptcy Code provides Debtors with a powerful tool if parties violate the automatic stay; these include an award of actual damages, attorney fees and, sometimes in appropriate circumstances, punitive damages. §362(k).

As you can see, the automatic stay is a powerful instrument in protecting a debtor’s interests.

Ryan D. Caldwell is a Omaha and Lincoln, Nebraska Bankruptcy Attorney and strives to provide clients with compassionate legal care in areas bankruptcyfamily lawcreditor’s rightsestate planning, and probate.

Other Bankruptcy Lawyers talking about the Letter A are as follows: