The Chapter 12 Family Farmer Bankruptcy Update
A continued low-price environment for commodities, trade uncertainty and COVID-19 issues impacting supply chains and labor costs have continued to put pressure on family farmers. In the first quarter of 2020 there were 170 Chapter 12 bankruptcies nationwide up from 130 during the same period in 2019. Despite an increase in the debt limit from $4.4 Million to $10 Million to allow for more Chapter 12 filings in April of 2019 as part of the Family Farmer Relief Act, less than 1% of those who filed for Chapter 12 protection in the first quarter of 2020 had debt between $4.4-$10 Million.
The impact of Covid-19 has not yet impacted Arizona bankruptcy filings where the first quarter 2020 and second quarter 2020 remain consistent across all chapters. Nationwide the number of Chapter 12 bankruptcies filed in the second quarter of 2020 dropped to 115 from 170 the previous quarter. However, the current economics of businesses including agricultural businesses suggest that there is substantial pressure building towards a wave of bankruptcies.
If your agricultural business’s cash flow needs do not meet its current debt obligations or your farm is an area experiencing declining land values, Chapter 12 can be a powerful tool to handle the current uncertainty and avoid tax consequences of forced sales or liquidations. The bankruptcy reorganization lawyers at Mesch Clark Rothschild are available to assist you in determining if Chapter 12 is appropriate for your family business.