Milwaukee, WI Bankruptcy Law Blog

Thursday, November 30, 2017

A Few Tweaks To the Farm Bankruptcy Law

In the movie O Brother, Where Art Thou? the character Delmar O’Donnell agrees to break out of prison along with the men he is chained to because he thinks there is some money to be made. When the men are discussion what they will do with their share of the $1.2 million they hope to recover, Delmar says, “I’m gonna visit them foreclosein’ son of a guns down at the Indianola Savings and Loan. Slap that money on the barrel head and buy back the family farm. You ain’t no kind of man if you ain’t got land.”

It’s endearing and relatable to anyone who has ever worked the land. There is something power and honest about being a farmer, and having that taken away has got to be soul crushing. Although there aren’t too many folks around who lived through the Great Depression years the film is set in, those of us that lived through the farm crisis of the 1980’s understand exactly why Delmar was so passionate about buying back the family farm.

It was the farm crisis that inspired Congress to create a new bankruptcy law that applies to family farmers and fishermen. Chapter 12 combines some of the best features of Chapter 11, which applies to corporate reorganization bankruptcies, and Chapter 13, which is used by people who want to get on a repayment plan. It is more streamlined, less complicated, and less expensive than Chapter 11, but able to deal with the bigger debts that farmers have that Chapter 13 is unable to handle.

Many people that file under Chapter 12 are able to hold on to their land and keep farming, and the success rate is likely to increase thanks to a recent change in the law. Earlier this year, Congress passed and the President signed an update to the Chapter 12 process that eliminates certain tax debt that was making it hard for farmers to successfully complete the Chapter 12 process.

Previously, if a farmer sold a piece of equipment or land for more than its tax basis, the federal government would levy a capital gains tax on the proceeds. That tax would have to be paid before other debts, and was not dischargeable. Some family farmers found it impossible to pay off the tax debt without getting out of the farming business all together.

The new law says any capital gains tax is to be treated like an unsecured debt, meaning it does not have to be paid before other creditors can be paid, and it is dischargeable at the end of the Chapter 12 process.

This change is great news for family farmers facing financial difficulties. It makes it a lot easier for family farmers to file for, and successfully navigate, a Chapter 12 bankruptcy instead of being forced to liquidate and leave behind generations of history and heritage.  


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