Chapter 12 bankruptcy is a specialized bankruptcy option designed for individuals who make their living through family farming or fishing operations. This program provides a pathway for reorganizing debts when revenue might be erratic due to weather or other conditions out of the filing party’s control. Under Chapter 12, debtors can continue operations while obtaining protection from creditors. 

To be eligible for Chapter 12 bankruptcy, a debtor must show that farm income comprises at least half of what they earned in the previous year. If this is not the case, they can also qualify if they met the 50 percent standard in two of the prior three years. However, there are many different ways in which a farmer might collect revenue, so there can be confusion as to what satisfies the IRS standard.

Specific forms of revenue that can count toward farm income for the purposes of a Chapter 12 proceeding include the following: 

• Revenue from agricultural production — This includes the proceeds from selling crops, livestock and dairy products. You can also count funds derived from the sale or rental of farm equipment. 

• Government payments and subsidies — Payments from government programs, such as subsidies, grants or insurance payments related to farming, also count as farm income. These funds can be vital for maintaining cash flow and ensuring you can meet your debt obligations during the bankruptcy process. 

• Income from farming-related activities — Any additional income from activities directly related to farming, such as agritourism or selling farm-related products, such as vegetables at a farm stand or homemade jam made from farm-grown fruit.   

It is equally important to identify what does not constitute farm income. Income from non-farming sources, such as investments, interest from savings or rental income from properties not used for farming, should not be included as farm income. Boarding animals and hosting events, such as weddings, might not qualify either. Misclassifying income can lead to complications in your Chapter 12 case.

If you are considering Chapter 12 bankruptcy and need guidance on what qualifies as farm income, consulting with a bankruptcy attorney experienced in agricultural cases can provide valuable assistance. Anker Law Group can help ensure that all aspects of your income are correctly reported so you can develop a feasible repayment plan that supports both your farming operations and financial recovery. Please call 605-519-5967 or contact us online to set up a free consultation. Our office is in Rapid City.