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Farm financial stress appears in more than one bankruptcy category

A leader with the National Agricultural Law Center says understanding farm bankruptcy trends requires looking at more than just Chapter 12 filings.

Senior staff attorney Elizabeth Rumley says Chapter 12 is specifically designed for family farmers and fishermen with regular annual income.

“If you don’t have at least 50% of your income from an ag business, then you are not even eligible to file with it in the first place,” she said. “Additionally, there’s other restrictions such as a maximum amount of debt that you can have.”

She tells Brownfield that Chapter 11 is a broader business reorganization chapter. She says ag businesses that don’t qualify for Chapter 12 may be better suited to Chapter 11 because of their size, organizational structure, or financial circumstances.

“Any type of business can file Chapter 11,” Rumley said. “It might have that ag connection because you have maybe a couple that both have off-farm jobs, and those off-farm income levels are high enough for small farms to make it so you don’t meet that 50% threshold.”

Rumley says Chapter 12 provides eligible ag operations with a structured process for reorganizing debt while continuing to operate the farm or ranch.

She says it’s important for the National Agricultural Law Center to track data for both chapters because it provides a broader view of financial stress in the industry.

Elizabeth Rumley: