What is Farmers Bankruptcy?

Farmers Bankruptcy: What is it?

Did you know that farmers and fishermen have bankruptcy laws specifically designed for them? These are the only areas of business that have been given special rights and privileges when the businesses go bad.  The bankruptcy laws define who is a farmer or a fisherman…but you don’t have to be plowing dirt or baiting hooks.  For example, farming businesses can include agriculture research firms and fisherman can be owners of aquaculture facilities. If these and other businesses involved in these industries get in trouble, they can use Chapter 12 of the bankruptcy code to get relief.  Other businesses in trouble typically have to file Chapter 11… Toys R Us for example…and because they have to get the vote of their creditors to keep going, they often crash and burn. You do not need creditors on board to have the court approve your Chapter 12 bankruptcy, so it is one of the most powerful forms of bankruptcy.

To qualify for Chapter 12, more than 50% of your operational revenues must come from fishing or farming, and if you are a farmer, more than 50% of your debts must be related to farming. A fishing business must have at least 80% of its debt related to the business. Farmers with up to about 4 million in debt are eligible; fishing businesses with just under 2 million in debt are eligible.

One of the beautiful features of Chapter 12 is the creditors are not much in the equation…if the proposed restructuring follows some basic rules, the farmer or fisherman can force the terms on their creditors whether they like them or not. Because Chapter 12 is not well-publicized, and infrequently used, the bankruptcy system sees few of them. I have filed 5 of them in my career, and each time, it seems I am an active participant in the development of protocols and procedures for a government system that is on unsure footing and is looking for guidance from those of us in the 'field’.

Chapter 12 businesses get to reduce and restructure their debts over time, based on their ability to pay. It is a very powerful tool when used properly.

There is very little case law to decipher some of the vague elements of Chapter 12, so I have found that if you are proposing a “best we can hope for” plan with good intentions, the chances for success are high. If you are in a business that even remotely deals with agricultural or ocean-based food sourcing, and you are feeling the pinch, you should spend an hour with an experienced Chapter 12 lawyer.

I offer free consultations if you think you might qualify for a Chapter 12 bankruptcy. Please call (561) 220-2528 to make an appointment.