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Raising of Debt Limit Allows More Family Farmers to Qualify for Bankruptcy Relief

Published December 13, 2019 by Sasser Law Firm
More Small Farms Qualify for Bankruptcy Thanks to Higher Debt Limit

Operating a family farm in North Carolina is a challenging way to make a living, with fluctuating commodity prices, disruptions in export markets, higher land prices and unpredictable weather emergencies. When times get tough, the amount of debt that family farmers carry can quickly become unmanageable. Farmers may need to seek relief to make a fresh start.

The Family Farmer Relief Act, passed by Congress this summer with bipartisan support, revised an outdated debt limit that prevented many family farmers from taking advantage of Chapter 12 of the federal bankruptcy code. North Carolina has about 50,200 farms, and nearly 90 percent are categorized as family farms, according to the N.C. Cooperative Extension.

The recently passed law raises the amount of debt that a farmer may have and still qualify for relief under Chapter 12 from $3,237,000 to $10 million, allowing more farmers to seek relief under the program. The change reflects the increase in land values and the growth in the size of farming operations in North Carolina and across the nation.

Expanding the eligibility requirements for Chapter 12 bankruptcy protection offers a stronger tool to help family farmers keep their farms operating during economically challenging times while they regain financial stability.

The American Bankruptcy Institute endorsed the legislation that was enacted into law, as did a number of farming organizations including:

What are the Effects of the Family Farmer Relief Act?

U.S. Sen. Thom Tillis of North Carolina, who was a co-sponsor of the Family Farmer Relief Act, said in a press release, “Farmers in North Carolina and across the country are reeling from low commodity prices and natural disasters that will take years to recover from. As these farmers rebuild their reserves, they deserve protections during this delicate time when so much could go wrong outside their control.”

Recognizing the challenges that family farmers and fishermen face, Congress added Chapter 12 to the federal bankruptcy code in 1986 to deal with farm debt and allow debt payments to be made seasonally. The law eliminated some of the costly reorganization intended for large corporations. One of the primary architects of the Chapter 12 law was now-retired U.S. Bankruptcy Judge A. Thomas Small, who served in the Eastern District of North Carolina from 1982 to 2009.

The 2019 revision to the law will help family farmers struggling in the current economy.

Currently, the rates of farm bankruptcies in many farming regions across the U.S. are at their highest level in a decade. Debts carried by farmers are approaching the historic levels set in the 1980s, putting pressure on more and more farming operations. Farm debt in 2019 is projected to be a record $416 billion, according to the American Farm Bureau Federation.

Chapter 12 bankruptcy allows farmers who are in financial distress to reorganize their debts and develop a plan to repay all or a portion of their debts over three to five years. It offers farmers the flexibility to sell land or farming equipment that is free and clear of liens. Family farmers and fishermen who have stable annual income may qualify to file under Chapter 12 of the bankruptcy code.

Farm Bankruptcies in North Carolina

Chapter 12 farm bankruptcies continue to increase nationwide. Chapter 12 farm bankruptcy filings were up 24 percent for the year ending September 2019 compared to the prior year, based on U.S. Courts data. North Carolina ranked 11th among states in the number of Chapter 12 farm bankruptcy filings for the 12-month period. Southeastern states as a whole had 118 Chapter 12 bankruptcies, reflecting a 31 percent increase over the prior year.

Filing for bankruptcy is not right for everyone. But bankruptcy protection is a legal tool that is intended to help individuals, family farmers and small and large businesses restructure unmanageable debt, get relief from certain types of debt and chart a fresh course. If you are struggling with insurmountable debt and worried about how to pay your farm creditors, knowledgeable legal guidance is available.

A bankruptcy attorney at Sasser Law can sit down with you at no charge, review your financial situation and discuss the legal options you have to get some relief. We offer straightforward guidance and never pressure anyone to file for bankruptcy. Whether you are a family farmer in Wake County, Johnston County, Harnett County, Lee County, Franklin County, Granville County, Moore County, Vance County or elsewhere in North Carolina, a Chapter 12 bankruptcy attorney at Sasser Law is ready to assist you.

The attorneys at Sasser Law are recognized by the North Carolina State Board as Board-Certified Specialists in bankruptcy law. We have helped more than 8,500 individuals and businesses in North Carolina obtain relief during the past 20 years.

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