How Does Chapter 12 Work in Washington State?
Chapter 12 is similar to other chapters of bankruptcy in many ways. For example, you will need to attend a Meeting of Creditors, in which the trustee and your creditors ask you about your debt and other financial affairs. Additionally, Chapter 12 triggers the automatic stay, which freezes all collection actions. Like Chapter 13, it also implements the co-debtor stay, which protects others who are liable for your debt—even if they aren’t filing for bankruptcy.
Chapter 12 bankruptcy allows you to propose a repayment plan that will last for 3-5 years and use all your disposable income. The judge will need to approve this plan, upon which you will begin making regular payments to the trustee, who will distribute these funds to your creditors according to bankruptcy laws.
Once you complete this repayment plan, you can benefit from a debt discharge. So long as your creditors receive as much as they would through the Chapter 7 liquidation process, you can be released from liability for any unsecured debt that remains after your repayment plan.
Additionally, you may be able to “cram down” secured debt (e.g. mortgages or boat loans), which allows you to convert any debt owed beyond the collateral into unsecured debt. Once it is unsecured, it can be discharged, and your payments on the secured amount can be stretched beyond your original 3-5-year plan.
In most cases, farmers and fishermen continue their operations after bankruptcy. As such, Chapter 12 can be an effective way to restructure and reduce debt without losing the family business.
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