Family Farm Chapter 12 Bankruptcy Background and Data

Enacted in 1987, Bankruptcy Code Chapter 12 provides family farmers and fishermen a mechanism to reorganize their financial affairs.  With many ag experts predicting increased financial hardship for family farms, Chapter 12 looks to be a source of relief for many.  Nationally, filings in 2016 have outpaced filings in 2015 and seem to be proving out the ag experts.

Chapter 12 offers 4 real outcomes from best to worst:

1)  Submit and get a plan confirmed, follow the plan and get a discharge.

2)  Submit and get a plan confirmed, fail to follow the plan, i.e. make the required payments.  May result in conversion to Chapter 7.

3)  Submit a plan which isn't confirmed.  The debtor can convert to Chapter 7 or be dismissed entirely.

4)  Case is dismissed before the plan is filed or voluntarily converted to Chapter 7.  Court rarely converts absent consent.

Nationally, because the Code is intented to protect family farmers, a high percentage of debtors (41.9%) make it through the entire process which generally takes about 5 years.  In contrast, approximately 20% are dismissed or converted to Chapter 7 before filing a plan.  The least common is filing a plan that isn't confirmed (<10%).  As expected, many plans are confirmed and the farmer makes some progress toward getting a discharge but ultimately fails to reach the end of the process (approximately 30%). 

While the greatest number of debtors will ultimately obtain a discharge, many have to revisit their plans during the process.  This is likely caused by the early plan filing requirement, 90 days after the petition date, and the frequently changing commodity markets upon which the farmers depend.