America's agricultural sector appears to be hit hard by previous financial hardships and slower to bounce back
— Bankruptcy filings have been on a decline over the last decade according to figures released earlier this year by the Administrative Office of the United States Courts. This trend covers almost all chapters of bankruptcy designed for individuals and businesses; however, one alternative appears to be an exception. Chapter 12 is the one type of bankruptcy apparently heading in the opposite direction based on the latest reports.
Taking a Closer Look
Overall, America's total number of bankruptcies reached its high point in 2010 with 1.6 million cases being filed by September of that year. Since then, the numbers having been falling consistently. This year's cases amounted to just over 773,000, a decline of 0.3 percent.
Chapter 7 bankruptcy remains the most common type being filed by both businesses and individuals. In such cases, debtors are required to surrender certain belongings, which are then liquidated in order to pay off debts. Chapter 13 filings have routinely fallen into second place in terms of popularity. This type of bankruptcy involves debt restructuring rather than liquidation. Chapter 11 works in much the same way as chapter 13 but is geared more toward businesses than individuals.
Discussing the Current Exception
While filing for chapters 7, 11 and 13 is becoming a less frequent occurrence among Americans, one segment of the system is seeing an ongoing uptick. Reports indicate the number of chapter 12 bankruptcy cases has increased annually over the past five years. This alternative has been available since 1986 and was developed because of growing credit struggles in the agricultural sector. It is designed to protect family farmers and fishermen who are experiencing hardships under certain circumstances.
Eligibility for chapter 12 is dependent on a range of factors. For one, those filing must be actively receiving more than half their total income from commercial farming or fishing. At least half the filer's current debt must stem from farming or 80 percent in the case of commercial fishermen. Restrictions on the amount of debt they have accrued apply as well. With chapter 12, debtors are allowed to formulate repayment plans and are not required to give up their personal belongings or commercial equipment. In some instances, certain debts are discharged.
Trustees are appointed to oversee case filing and development of debt repayment plans. From there, plans are either approved or denied in court. If approved, the debtor in question must allot all his or her disposable income to repaying the debts covered in the plan. The trustee is in charge of distributing said income among creditors. Once all included debts have been paid, some of the debtor's remaining financial obligations not covered by the repayment plan may be discharged.
By the Numbers
Based on the latest figures, Bankruptcy attorneys have seen 509 chapter 12 cases so far this year. This shows an increase of almost 44 percent since 2015. Authorities in both the agricultural and financial sectors are attributing this uptick to surging costs of operating farms and fishing businesses and increases in the frequency and severity of natural disasters as well as rising tariffs being imposed on American agricultural imports by some countries. These factors have led to falling incomes, low returns on investments and swelling debt among family farmers and fishermen.
Chapter 12 bankruptcy cases are certainly on the rise across the nation. Analysts are quick to point out they have yet to reach the record highs set during the late 1980s. That being said, the numbers are expected to slowly continue on an upward trend during the years to come.
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