New Chapter 12 Bill Proposed

As bankruptcy rates among American farmers continue to rise, a bill was recently introduced in the Senate that would make some changes to Chapter 12 of the U.S. Bankruptcy Code.  The Family Farmer Relief Act of 2019 is designed with the intention to help family farmers reorganize after falling on hard times.

Chapter 12 is the section of the bankruptcy code that is specifically for family farmers and fishermen. Congress established Chapter 12 of the Bankruptcy Code in 1986.    Chapter 12 removes many barriers that debtors would face under Chapter 11 or Chapter 13. For instance, Chapter 12 is less complicated and expensive than a Chapter 11, which is better tailored to larger corporations or businesses.  Additionally, Chapter 13 is for regular wage earners who have smaller debts than a farmer would typically have. In establishing Chapter 12, Congress tried to combine features of the Bankruptcy Code to provide a way for family farmers and fisherman to successfully reorganize.

Family farmers have unique challenges.  As Senator Chuck Grassley (R-Iowa), one of the bill’s co-sponsors, stated, “For family farms whose assets are largely tied up in land and essential equipment, reorganizing debts can be particularly challenging when falling on hard times. As low commodity prices force farmers to take on more debt, this bill guarantees a safety net is in place for more farmers who need help getting back on their feet. By providing relief to these small-to-mid-size farms, we can ensure more successful reorganizations, which will be beneficial for everyone involved in the supply chain, while avoiding mass liquidations and further consolidation in the largest sectors of the industry.”

The Family Farmer Relief Act of 2019 would allow more family farmers to use Chapter 12 by raising the debt limit from $4.1 million to $10 million.  Zippy Duvall, the President of the American Farm Bureau Federation said “Lifting the liability cap and giving more farmers an opportunity to qualify for Chapter 12 bankruptcy provides the restructuring and seasonal repayment flexibility that many farmers need in today’s lagging farm economy and will help to align bankruptcy law with the scale and credit needs of U.S. agriculture.”

The bill is supported by the American Farm Bureau Federation.  The bipartisan bill was introduced by Sens. Chuck Grassley (R-Iowa) and cosponsored by Sens. Amy Klobuchar (D-Minn.), Ron Johnson (R-Wis.), Patrick Leahy (D-Vt.), Thom Tillis (R-N.C.), Doug Jones (D-Ala.), Joni Ernst (R-Iowa) and Tina Smith (D-Minn.).

If you have questions about Chapter 12 or any other form of bankruptcy, please contact one of our offices to set up a consultation with one of our experienced attorneys.