Washington, DC — Sen. Chuck Grassley of Iowa today took the lead in an effort to make protection for farmers a permanent part of the federal bankruptcy code and to provide necessary relief for family farmers who face a big tax liability after they are forced to sell assets to reorganize their farming operations.

A bi-partisan group of farm state lawmakers joined in support of Grassley's legislation which is titled "SAFETY 2000" — or "Safeguarding America's Farms Entering the Year 2000." Backers include Senate Minority Leader Tom Daschle of South Dakota and Sens. Sam Brownback of Kansas, Herb Kohl of Wisconsin and Larry Craig of Idaho.

A bankruptcy lawyer who has represented hundreds of Iowa farm families as they struggled to reorganize farm debt also endorsed the proposal to amend Chapter 12 of the bankruptcy code. If the proposed changes are made, "I can tell the family farmers that can restructure their operations into viable farming units that the severe income tax problems which currently are an impediment to downsizing and restructuring in or out of bankruptcy can be successfully accomplished in Chapter 12," said Joseph A. Peiffer, of Hiawatha. Peiffer testified last year at a congressional hearing Grassley convened to consider bankruptcy reform.

The Grassley/Daschle bill introduced today would:

• make Chapter 12 of the bankruptcy code permanent. Grassley pushed through Chapter 12 protection in 1986, during the 1980s farm crisis He has won periodic extensions of the proposal since that time. Current law is set to sunset on April 1. Grassley has championed the effort to give permanent status to Chapter 12. "It is an important leverage tool to help family farmers manager their debts. Today's farm crisis underscores the need to give farmers permanent bankruptcy protections they can count on in the future," Grassley said.
• amend Chapter 12 so that claims owed the government — including taxes — that result from the sale of farm assets are given a low priority in a bankruptcy repayment plan. This is important because the bankruptcy code establishes a pecking order for creditors which, in effect, determines which creditors will be paid and which creditors will not.

  Grassley said that if a farmer needs to sell livestock or land to generate cash for the farming operation, current law requires that the tax liability resulting from this sale be paid first and in-full. Farmers who don't have enough money to satisfy this tax liability are prevented from selling assets. Grassley said his bill would make the tax bill last on the list so that the federal government isn't frustrating the ability of a farmer to reorganize his business. "This change will help Chapter 12 meet its full potential in giving farmers the fresh start they need and deserve by address the significant tax problems that they face when downsizing operations to make them profitable," he said.

• expand the definition of "family farmer" for bankruptcy law. This change would encompass many farmers who are otherwise forced to sell their farms and help more farm families who are entitled to the fresh start envisioned by Congress when Chapter 12 was enacted.

Unlike Chapter 11 of the bankruptcy code, which governs corporate reorganizations, Chapter 12 does not require a financially distressed farmer to obtain the consent of his creditors prior to reorganization. The ability of lenders and other secured creditors to veto a farmer's reorganization plan often led to farm families being forced off their land and out of the business of farming.

In addition, unlike Chapter 7 of the bankruptcy code, which is a form of liquidation, a financially distressed farmer doesn't have to surrender the farm to creditors. Chapter 12 prohibits lenders from foreclosing on property if the farmer is able to make rental payments.

Grassley said Chapter 12 has proven itself a viable safety net and kept more farmers in business. An Iowa State University study showed that at least 80 percent of Iowa farmers who filed for Chapter 12 protection in 1986 and 1987 stayed in farming. One Iowa farmer who filed Chapter 12 during the 1980s went on to be designated a Master Farmer by Wallaces Farmer in 1995.

Grassley is chairman of the Senate subcommittee responsible for bankruptcy policy and an outspoken voice in Washington for the family farmer.

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