When congress revised bankruptcy laws a few years ago, they included one major provision that didn’t get media attention: fishermen gained access to Chapter 12.
Available to farmers for decades, Chapter 12 allows filers to restructure debt at current value, coordinate loan expenses with income, and stops a fishing boat repossession.
“It’s remarkably unused” by fishermen, observes Peter Fessenden, given tightened federal restrictions on groundfishermen, catch declines in lobster and other fisheries, and crippling fuel and bait costs.
Fessenden is the Standing Chapter 13 Trustee and Chapter 12 Trustee for the U.S. Bankruptcy Court for the District of Maine.
Even though total bankruptcy filings in Maine nearly doubled in 2007, only three cases have been filed by fishermen under Chapter 12 since the law changed in October 2005.
Fessenden attributes the low turnout to “ignorance” because “fishermen and bankruptcy lawyers don’t know about it.”
When the first case was filed two years ago, maritime attorney Nicholas Walsh in Portland recalls courthouse lawyers “spinning in circles” because “no one had heard of it before.” Fishing bankruptcies generally have been “very unusual, but I think they’re becoming more common because fishermen are so over-extended [financially].”
“The reticence in the fishing community [to file] is the same as the farming community,” adds Fessenden. “Fishermen are used to getting by and dealing with problems — farmers are the same — and believing, sooner or later, fishing will be better.”
Significantly, Chapter 12 provides loan restructuring based on the current value of assets, including fishing boats and homes, and establishes a payment plan based on current income.
Imagine a fisherman, for example, who has a $450,000 loan balance to pay over the next 10 years for a $700,000 dragger he bought 10 years ago. Fuel, insurance and bait prices have skyrocketed while catch has plummeted along with his income. He can’t sustain those loan payments, especially if he’s carrying a home mortgage, and/or has mortgaged his home to stay in business. In today’s market, his fishing vessel may be worth $300,000 or less but his banker expects him to pony up payments on the $450,000 balance.
Once the boat and home are assessed at current value and the loans are restructured under Chapter 12, our fisherman has expenses he can handle given his current income.
Also, Chapter 12 filings are much cheaper than others. Fessenden estimates the cost between $3,000 to $12,000 versus $30,000 or more for other chapter filings.
As trustee, Fessenden is the middleman who works out payment plans between bankruptcy filers and their secured and unsecured creditors, all of whom want full payment on debts. “Most of the time we can reach an agreement,” Fessenden says, which then is approved or disapproved by a judge.
He compares heavy debt burdens to disease and bankruptcy reorganization to what is, for many, a life-saving solution. “If you wait too long and you don’t get help, if you’ve built up too much other debt, [the condition] gets worse, and it will sink you or cure you.”
“I don’t want to encourage bankruptcy,” Fessenden adds. “It’s no fun, it’s a pain in the neck, but it won’t kill you. It can save your life.”