The Senate on Thursday passed the Family Farmer Relief Act, a bill that raises the amount of debt that farmers interested in filing for Chapter 12 bankruptcy can hold. Right now, the debt cap is approximately $4.2 million, and this proposed law will raise it to $10 million. The bill has now moved to President Trump’s desk for his signature.
Chapter 12 is reorganization bankruptcy for family farmers and fishermen. In other words, it is a form of bankruptcy that allows farmers and commercial fishermen to continue farming/fishing by restructuring their finances and avoiding liquidation or foreclosure. Chapter 12 currently requires that debtors meet the following criteria:
- Be engaged in farming or commercial fishing operations;
- Have a total debt of not more than $4,153,150* if they are farmers or $1,924,550 if they are fishermen;
- Owe 50% of their total debts as a result of farming operations or 80% of their total debts as a result of commercial fishing operations (excluding home mortgages);
- Derive over 50% of their gross income from farming or commercial fishing operations.
There are limitations on who can file for Chapter 12 bankruptcy. Partnerships and corporations can only file for Chapter 12 if a single-family owns more than 50% of their stock or equity interest. If a corporation or partnership qualifies for Chapter 12 bankruptcy, similar restrictions apply to farmers and fishing operations as those listed above.
When a Chapter 12 bankruptcy case is filed, an impartial trustee is appointed to administer the case. Filing a petition under Chapter 12 “automatically stays” most collection actions against the debtor or the debtor’s property and the bankruptcy clerk gives notice of the bankruptcy case to all creditors. While the stay is in place, creditors may not try to collect past-due debts. The trustee will then hold a “meeting of creditors”, where the trustee and creditors may ask the debtor questions regarding the debtor’s financial affairs and proposed terms of the debtor’s repayment plan.
The debtor has 90 days after filing the petition to file a plan of repayment. The plan, which must be submitted to the court for approval, provides for payment of fixed amounts to the trustee on a regular basis. The trustee then distributes the funds to creditors according to the terms of the plan.
The Family Farmer Relief Act was introduced in response to an increase in the number of farmers filing for bankruptcy. According to research conducted by reporter Maura Sadovi, there were 474 Chapter 12 filings in 2018, up from 458 in 2017 and 317 in 2014.
* Under the new law, this limit would be raised to $10 million for farmers.
The National Agricultural Law Center will host a webinar discussing the specifics of Chapter 12 bankruptcy on October 16th. To register for the webinar, click here.
To read/download an issue brief discussing the proposed changes, click here.
For more information from the National Agricultural Law Center on bankruptcy in general, click here.
For information from the Bankruptcy Court specific to Chapter 12, click here.
To read the Family Farmer Relief Act of 2019 click here.