The recent passage in the House and Senate of the Family Farmer Relief Act of 2019 (H.R. 2336) will allow more farmers to restructure their debt while continuing to operate their farms, which is typically beneficial to farmers and creditors. Chapter 12 of the Bankruptcy Code was originally enacted in 1986 as temporary emergency relief for farmers experiencing economic distress during that time. However, due to the unpredictable agricultural market, Chapter 12 was continuously extended and finally made permanent in 2005.
Chapter 12 Bankruptcy Code Offers Alternative for Family Farmers
Chapter 12 offers a form of relief for farmers that is different from Chapter 7 (liquidation), Chapter 11 (business reorganization), and Chapter 13 (individual reorganization). Chapter 12 provides specialized relief designed to address the distinct needs of family farmers. Historically, in order to be eligible for relief under Chapter 12, a farmer must be engaged in a farming operation with regular earned income from the farming operation, and the farmer’s aggregate amount of debt could not exceed about $4.4 Million.
Family Farmer Reorganization Act Accounts for Various Challenges Modern Farmers Face
President Trump is expected to approve the Family Farmer Reorganization Act (H.R. 3311), which updates Chapter 12 to take into consideration the current economic hardships facing struggling farmers. Family farmers today are challenged by the changing value of land, governmental policies affecting trade, fluctuating prices of commodities, and weather disasters, among other challenges.
The Family Farmer Relief Act is designed to provide farmers with necessary tools to handle these challenges, including more than doubling the current debt limit used to determine whether a family farmer is eligible for relief under Chapter 12, from about $4.4 Million to $10 Million.
New Debt Limit is Reflective of Industry Trends in Cost for Land & Equipment
The newly increased debt limit reflects the trending increase in the value of land and equipment as well as the increase in the average size of typical U.S. farming operations and consequently the larger credit needs of family farmers. The expected result of the Family Farming Relief Act is that more family farmers will satisfy the eligibility requirements in order to restructure their debts as part of a repayment plan supervised by a bankruptcy trustee.
Brief Overview of How Chapter 12 Works
Under Chapter 12, debtor farmers, which may be individuals, corporations, or partnerships, propose a three to five-year plan to repay creditors. The plan is denied or approved by the bankruptcy court, typically on the advice of the Trustee who monitors the plan and collects and disburses plan payments to creditors. Most farmers participating in Chapter 12 bankruptcy continue their farming operations throughout the plan, enabling them to pay their creditors.
Wide Support for the Act
The Family Farmer Reorganization Act is a bipartisan measure supported by the American Bankruptcy Institute, the American College of Bankruptcy, the American Farm Bureau Federation, and the National Farmers Union. To view the full text of H.R. 2336, click here: https://www.abi.org/newsroom/congress/hr-2336-the-family-farmer-relief-act-of-2019.
If you have any questions regarding the Family Farmer Reorganization Act, please contact one of the attorneys on our Financial Services Team.
Peggy Richard is an associate in the Litigation and Creditors’ Rights & Bankruptcy practice groups and the Financial Services Industry Group. The information in this article is not intended to provide legal advice. For professional consultation, please contact Peggy Richard at Saalfeld Griggs PC. 503.399.1070. [email protected] © 2019 Saalfeld Griggs PC