Congress Approves Tax Relief for Chapter 12 Family Farmers

A piece of bipartisan legislation concerning Chapter 12 of the Bankruptcy Code landed on the President’s desk for signature last week.  The Family Farmer Bankruptcy Clarification Act of 2017 was sponsored by Senator Al Franken (D-Minn.) and Senator Chuck Grassley (R-Iowa), and was included as a part of the supplemental appropriations package that the Senate approved 82-7.  “Our bipartisan bill is a commonsense fix to ensure that the law functions as intended and protects family farmers in Minnesota and across the country,” Senator Franken said in a statement on October 24. “I’m glad this bill is set to become law and will help ensure farmers going through bankruptcy get a fair shake and are able to repay the debts they owe without sacrificing their families’ futures,” he said.

About Chapter 12 Bankruptcy

Chapter 12 bankruptcy is a type of bankruptcy that is available to family farmers or family fisherman.  Chapter 12 is meant to deal with unique situations that family farmers face when trying to reorganize through the bankruptcy process.  It was made permanent during the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Chapter 12 allows family farmers to sell assets without having the capital gains from the sales jeopardizing their reorganization. However, a 2012 Supreme Court case, Hall v. U.S., held that the language in BAPCPA did not specifically allow the farmers to treat the capital gain taxes as an unsecured claim.  This was a problem because taxes owed to the IRS had to be paid in full unless the IRS agreed otherwise.  However, farmers needed the cash to reorganize. The Family Farmer Bankruptcy Clarification Act makes clear that family farmers who are reorganizing their debts under Chapter 12 are able to treat capital gains taxes owed to the government as general unsecured claims.  The Act also takes away the IRS’s veto power over the bankruptcy plans’ confirmation.

As Senator Grassley stated, “Family farmers face obstacles that others don’t when dealing with bankruptcy. Their assets are largely tied up in farmland, which creates significant challenges for these family operations when reorganizing debt. Years ago Congress took specific steps to address these disadvantages, but the Supreme Court failed to recognize Congress’ intent when evaluating the law. Thankfully, Congress has now approved a fix for this problem and family farmers facing hard times can breathe a sigh of relief. I look forward to the president signing this bill into law.”

 

It is encouraging to see our elected officials from across the aisle come together to help solve problems.  If you need help solving your own debt problems, please contact one of our offices and set up a free consultation.