On August 1, 2019, the Senate passed the Family Farmer Relief Act of 2019, a bipartisan bill that had already been approved by the House. The bill now goes to the president, who is expected to sign it shortly. It will go into effect upon signing.
The Family Farmer Relief Act makes changes to Chapter 12 of the Bankruptcy Code. Chapter 12 is probably the least known and least used chapter in the Bankruptcy Code. It applies only to family farmers or fishermen, meaning those people who make their livings from farming or fishing. It is a means of providing restructuring to those who might not qualify for Chapter 13 and don’t want to file the more technical, complex and expensive Chapter 11. Farmers often don’t qualify under Chapter 13 because Chapter 13 is specifically designated as restructuring for individuals “with regular income.” Typically the Chapter 13 expects regular, equal monthly payments. Farmers have “regular” income, but it often comes annually, at the time of sale of their produce. As a result, Chapter 13 is not well-suited for farmers or fishermen. Additionally, Chapter 13 has relatively low debt limits that disqualify many farmers.
Under the Family Farmer Relief Act, farmers with debts less than $10 million qualify for Chapter 12. Unlike Chapter 13 where a plan is submitted with the filing, in Chapter 12 a plan is due 90 days after filing. Almost all debts can be crammed down, meaning the secured creditor can be forced to accept only what his collateral is worth at the time, not the total amount of the debt. Chapter 12 allows for flexible payment schedules to align with harvest times. The Act encourages debtors to reach a consensual plan and requires a status conference 60 days after filing to report on what efforts have been made to achieve an agreed-upon plan.
Small to medium size farming operations have suffered in recent years. Although compared to Chapters 7 and 13, Chapter 12 filings are few in number, they were already on the rise in 2018. This new law will almost surely increase the number of Chapter 12 filings.
If you have bankruptcy questions or would like to discuss how any of the bankruptcy Chapters might help you, please contact us.