Chapter 12 was created in 1986 to help family farmers keep their land in the face of falling crop prices and the increasingly high costs of production. Recent changes to eligibility limits make Chapter 12 available to family farm with total debt of $10 million or less. The debtor (which can be an individual, a married couple, or a family-owned corporation, LLC or partnership). At least 50% of a debtor’s obligations must have arisen out of farming operations.
There are some restrictions on what kind of businesses qualify as family farming operations The statute defining “farming operations” states that it includes (but is not limited to) farming, tillage of the soil, dairy farming, ranching, production or raising of crops, poultry or livestock, and production of poultry or livestock products in an unmanufactured state. Bankruptcy Code § 101(21). Court have decided that covered farming operations, although not specifically mentioned by the statute, re similar to the above list and involve exposure to financial risks associated with the forces of nature. So, for example, whereas boarding horses and giving riding lessons probably does not qualify, breeding and training horses does.
Loans to qualifying family farmers can be extensively modified, including reductions in principal to the value of the collateral securing the loan, changes to interest rate and term, etc. Unlike cases under chapter 11 (other than the new SBRA and to a very limited extent in individual chapter 11 cases not under the SBRA), the absolute priority rule does not apply.
Michael D. Pinsky, P.C. represents clients throughout New York’s Hudson Valley in a full range of bankruptcy matters. Please call 845-394-2616 or contact me online for a free initial consultation at my office in Newburgh.