Chapter 12 — Internal Revenue Manual Part 5. Collecting

bankruptcies are discussed in detail in IRM 5.9.9, Processing Chapter 12 Bankruptcy Cases. Readers may refer to IRM 5.9.9 for additional information on Chapter 12 cases not addressed within IRM 5.17.11.20.

Chapter 12 is similar in many ways to a Chapter 13. However, Chapter 12 incorporates some aspects of the Chapter 11 case. Only a "family farmer or fisherman" can be a debtor under Chapter 12. A "family farmer" can be an individual, partnership, Limited Liability Company (LLC), or corporation. The debtor must have regular income and specified percentages of the income, assets and debts of the debtor must be farmed or family fishing related. See 11 USC 101(18), (19), and (20). Additionally, see IRM 5.9.9.2, Chapter 12 Eligibility, for additional information about eligibility for filing Chapter 12. The following table provides the debt limits for family farmer and family fisherman. The limits below are based on the April 1, 2025 adjustment. Debt limits are adjusted at three year intervals to reflect changes in the Consumer Price Index. Next schedule adjustment will be on April 1, 2028.

The following table summarizes key eligibility criteria for filing bankruptcy under Chapter 12. Employees should consult 11 USC 101(18), (19), and (20) and IRM 5.9.9.2, Chapter 12 Eligibility, for complete eligibility rules.

Chapter 12 Eligibility

Characteristics

Family Farmer

Family Fisherman

Entity

Individual, partnership, Limited Liability Company (LLC), or corporation

Debt Limit

$12,562,250, subject to periodic adjustment for inflation

$2,568,000, subject to periodic adjustment for inflation

Percent of Debt from Operation of Business

50% of liabilities must be attributable to farming operations (excluding debt for personal residence of the farmer or residence of the farmer partner/shareholder)

80% of liabilities must be attributable to fishing operations (excluding debt for personal residence of the fisherman or residence of the fisherman partner/shareholder)

Gross Income (Individuals Only)

More than 50% of the gross income of the individual or the individual and spouse for the preceding tax year (or for each of the 2nd and 3rd prior tax years) must have come from the farming operation.

More than 50% of the gross income of the individual or the individual and spouse for the preceding tax year must have come from commercial fishing operation.

The Chapter 12 plan must provide for full payment of the IRS’s priority claims. Under BAPCPA, there is an exception to this rule when a claim is owed to a governmental unit and the debtor receives a discharge. The exception applies when the claim owed to the government unit arises as a result of the sale, transfer, exchange, or other disposition of farm assets used in the debtor’s operations. If the exception applies, the claim is treated as a general unsecured claim. (11 USC 1232)) See IRM 5.9.9.10.3(1), 11 USC 1232.

BAPCPA allows the plan to provide for post-petition interest on non-dischargeable unsecured claims to the extent that the debtor has disposable income remaining after paying all allowed claims in full. The 11 USC 1222(b)(11) provides that the plan may provide for the payment of interest.

Post-petition income tax liabilities of an individual Chapter 12 debtor cannot be paid or discharged through a Chapter 12 plan unless the debt arose as a result of the sale transfer, exchange, or other disposition of any property used in the debtor’s farming operation per 11 USC 1232.

Individual debtors remain liable for debts that are non-dischargeable under 11 USC 523.

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