By Eric Lockridge and Wade Iverstine

Lenders who finance farm operations, including those who provide equipment, seed, fertilizer, and other farming-related products on credit, should be aware that the Family Farmer Relief Act of 2019 has been signed into law. This new law allows a “family farmer” with up to $10,000,000.00 in debt to restructure and to reduce debts under Chapter 12 of the Bankruptcy Code.  The provisions in Chapter 12 are more farmer friendly than the alternatives the law available under Chapter 7 (liquidation) or Chapter 11 (debt reorganization or asset sale).  When Congress first established Chapter 12 of the Bankruptcy Code in 1986, it was available only to family farmers whose debt was $1,500,000.00 or less.  In 2019, farming is a much more high-tech and capital-intensive endeavor than it was 30+ years ago.  Even part-time farmers are likely to have more than $1.5 million in debt today once one adds up the often-financed cost of acquiring land, necessary equipment, seed, fertilizer, and other necessities.

Under the new law, a family farmer, or the family farmer and spouse, can qualify to file for bankruptcy relief under Chapter 12 so long as their total debt is no more than $10,000,000.00 (non-contingent and liquidated), and at least fifty (50%) percent of the debt arises out of farming operations (e.g., not personal credit card spending), among a few other requirements.

Agricultural lenders and vendors should be aware of this change in the law. Many more farmers are eligible for a Chapter 12 bankruptcy today than were eligible a few weeks ago.