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Newly Revised Bankruptcy Law Expands Chapter 12 to More Family Farmers

Bankruptcy, Restructuring and Creditor's Rights Alert Brittany Ogden, Lauren Beslow

With very little press, President Trump signed into law the Family Farmer Relief Act on August 23, 2019 (Public Law no. 116-51). The measure increases the current debt limit used to determine whether a family farmer is eligible for relief under Chapter 12 of the Bankruptcy Code from $4,411,400 to $10,000,000. By lifting this cap, Congress has provided more farmers, who would otherwise be required to file Chapter 11, with the opportunity to qualify for the specialized relief of Chapter 12. This bipartisan measure comes at a time when farmers are experiencing turbulence in the export market, increased inputs, and declining farm income.

Temporarily enacted in 1986 as an emergency response to the agricultural credit crisis, Chapter 12 has been a staple of the Bankruptcy Code ever since. Chapter 12 provides more flexibility to a farmer than a Chapter 11. Chapter 12 debtors with regular income pay into a plan for a period of three years to five years structured around a farm's cash flow cycle. Chapter 12 debtors are not required to file disclosure statements and plans are not due until 90 days after the case is filed. Plan payments are not due until after confirmation, and confirmation must occur within a specific time frame. Creditors do not vote on Chapter 12 plans and the debtor can avoid creditor committees. Additionally, Chapter 12 debtors benefit from capital gains tax advantages as well as additional flexibility to modify mortgages. 

If you have any questions about The Family Farmer Relief Act or addressing distress with a family farmer, please contact your Quarles & Brady attorney or contact one of the following attorneys who can assist with bankruptcy issues: