United States: New Law More than Doubles Chapter 12 "Family Farmer" Debt Limit

Last Updated: August 28 2019
Article by Lance P. Martin

On Friday, August 23, 2019, the President signed into law the Family Farmer Relief Act of 2019.

The Act increases the debt limit used to determine whether a family farmer is eligible for relief under Chapter 12 of the Bankruptcy Code. Under the old law, the debt limit was around $4.3 million. Now, it will be $10 million. This larger limit will encourage family farmers to use Chapter 12 – rather than the more onerous Chapter 11 – to reorganize their affairs.

About Chapter 12

Chapter 12 is meant for family farmers with regular income. It addressed the specific economic challenges they face – fluctuating land values and commodity prices, extreme weather, and the impact of trade policies and tariffs. It is a way for debtors to propose and confirm a plan to repay all or part of their debts over three to five years. It is faster, less expensive, less complicated, and more streamlined than Chapter 11 – the primary tool for corporate reorganization. It is also a better tool for debtors than a "wage earner" Chapter 13, given the larger debts they often must repay.

Who is a Family Farmer?

A family farmer can be an individual, an individual and spouse, or a corporation or partnership. Individuals must be engaged in farming, and over half of their total debts and annual gross income must be farming related. For corporations or partnerships, over half the outstanding stock or equity in the corporation or partnership must be owned by one family or by one family and its relatives, the family or the family and its relatives must conduct the farming operation, and over 80% of the value of the corporate or partnership assets must be related to the farming operation. Under the new law, the family farmer's debts may not exceed $10 million.

The family farmer must have regular annual income to ensure payments to creditors under his plan. Income may be seasonal, so long as it is stable.

How Does Chapter 12 Work?

A Chapter 12 case starts when the family farmer files a Petition, Schedules, and a Statement of Financial Affairs. Since only a family farmer can file a Chapter 12, there are no involuntary Chapter 12 cases like an involuntary Chapter 7 case. Just like other bankruptcy cases, the filing imposes an "automatic stay" on collection activity by creditors. But a Chapter 12 case also imposes a "co-debtor" stay for consumer debts from anyone liable with the debtor.

When the debtor files the Petition, the Court appoints a Chapter 12 Trustee to administer the case. If the court confirms the plan, the Trustee will collect payments and distribute them to creditors. The Trustee will convene a meeting of creditors within a month of the filing. The debtor must attend and answer creditor questions about his financial affairs and proposed repayment plan. Unsecured creditors must file their proofs of claim within 90 days of this meeting.

The Chapter 12 Plan

Absent court extension, the debtor must file a repayment plan with the petition or within 90 days after filing. The plan will provide for fixed, regular payments to the Trustee for the repayment of claims over three to five years. There are three claims in Chapter 12: priority, secured, and unsecured. Priority claims are those granted special status by the Bankruptcy Code, such as most taxes and the costs of the bankruptcy proceeding. Absent limited exceptions, the plan must provide for full payment of all priority claims.

Secured claims are those for which the creditor may liquidate certain property if the debtor does not pay the underlying debt. Secured creditors must be paid at least as much as the value of their collateral. Payments to secured creditors can sometimes continue longer than three to five years. If the debtor's underlying obligation was scheduled to be paid over more than five years, the debtor might be able to pay the loan over the original loan repayment schedule if he catches up all arrearages during the plan.

Unsecured claims are not supported by collateral. The plan need not pay unsecured claims in full, as long as it commits all of the debtor's projected "disposable income" (or property of equivalent value) to plan payments over three to five years, and as long as the unsecured creditors receive at least as much as they would receive if the debtor's nonexempt assets were liquidated under chapter 7.

Confirmation and Discharge

Within 45 days of filing the plan, the court will conduct a confirmation hearing to determine if the plan is feasible and meets the conditions for confirmation. Creditors may appear and object to confirmation. Most objections involve feasibility (e.g., Can the debtor make the plan payments?), whether the debtor has pledged all disposable income, or the liquidation test. If the court confirms the plan, the Trustee starts paying creditors. If the court denies confirmation, the debtor can modify the plan, convert the case to Chapter 7, or seek dismissal. The debtor receives no discharge until he completes all payments under a confirmed plan.

Conclusion

If you finance farming operations, be aware of this important change in the law because it will probably lead to more Chapter 12 filings. Chapter 12 cases move much faster than Chapter 11 reorganizations, and they have specific nuances and requirements you need to know. If you have a customer who files Chapter 12, you should immediately contact legal counsel to discuss your rights and obligations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions