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“Family Farmer Relief Act of 2019” Raises the Aggregated Debt Limit for Chapter 12 Bankruptcies

Updated: Apr 3, 2021

Old farm buildings in a pasture in the moonlight. Image is by Indigo Skies Photography
Old farm buildings in a pasture in the moonlight. Image is by Indigo Skies Photography

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Congress recently passed and the President has signed the Family Farmer Relief Act of 2019. This change in the law will raise the aggregated debt limit with Chapter 12 bankruptcies for family farms to $10 million, up from the $4,411,400. This increase in the aggregated debt limits will allow for more family farmers to qualify for the Chapter 12 bankruptcy option.

What is Bankruptcy?

The word “bankruptcy” can often make us think of failure, but it is not necessarily the case. In the United States, bankruptcy is a statutory procedure that allows a debtor to obtain financial relief and undergo a judicially supervised liquidation or reorganization of the debtor’s assets for the benefit of creditors. In the United States, bankruptcy is a process controlled by federal law but states have passed legislation to create lists of property exempt from bankruptcy. In many states, for example, the debtor’s home can be exempt from the bankruptcy proceeding.

Chapter 12 is a special form of bankruptcy applicable only to eligible family farmers and fishermen and was first established in 1986, during the height of the farm crisis. Chapter 12 of the U.S. Bankruptcy Code created to allow for business reorganization and debt repayment to avoid liquidation of the farm.

Need for Increased Debt Limit

Proponents have argued that the increased debt limit is necessary to keep up with increases in land values and size of farms over time. Chapter 12 filings have also been on the rise over the past year (Wilton, 2019). According to proponents, increasing the debt limit will allow more family farmers to take advantage of Chapter 12 and avoid the complex and expensive alternative of Chapter 11. The increased debt limits were supported by many agricultural groups, including Farm Bureau and Farmers’ Union.

Opponents of the bill argued raising the debt limit could have negative impacts on farmers. The American Bankers Association argued that the increase could increase the cost of credit for farmers in the long run. To read more on this, see this link.

If you have questions on Chapter 12, please check out this overview article. A much longer article fully discussing bankruptcy will be available later this year.

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