The Word On:Chapter 12with SENATOR CHUCK GRASSLEY |
The Word On:Chapter 12with SENATOR CHUCK GRASSLEY |
Word On: Chapter 12
Q: What is Chapter 12?
A: Chapter 12 is a section of the federal bankruptcy laws written to help
family farmers survive the Great Depression. The law expired in the early 1950s.
During the farm crisis in the mid- 1980s, I led the effort in Congress to bring
back this safety net for family farmers facing economic collapse. Unlike Chapter
11 of the bankruptcy code, which governs debt reorganizations for non-farm
businesses and corporations, Chapter 12 is designed specifically for financially
distressed farmers and ranchers. It addresses the unique risks associated with a
family farming operation. Chapter 12 gives financially-strapped farmers a
cushion to reorganize debt without the consent of creditors. And unlike Chapter
7, which is a form of liquidation under the bankruptcy code, a farmer seeking
bankruptcy protection doesn't have to surrender the farm to creditors if he is
able to make rental payments. An ISU study showed that at least 80 percent of
Iowa farmers who filed for Chapter 12 bankruptcy protection in 1986 and 1987
stayed in farming. Under the current stressful economic circumstances in farm
country, it is important to keep Chapter 12 in place to help those farmers who
otherwise may face foreclosure.
Q: What are your proposed changes to Chapter 12?
A: For starters, I am pushing legislation that would make Chapter 12 a
permanent part of the nation's bankruptcy laws. In addition, my bill would make
more family farmers eligible for Chapter 12 bankruptcy protection and reduce the
capital gains tax burden for farm assets sold as part of a reorganization plan.
In effect, this would allow farmers to sell grain, livestock and other farm
assets to generate cash flow which is essential to maintaining a farm operation.
Since I first got the law passed in 1986, I have kept my nose to the grindstone
to keep Chapter 12 in place for farmers as an option of last resort when they
fall on tough times. The current depression in the farm economy underscores the
need to get this safety net on the books for good. As farm prices plummet to
record-lows, many cash-strapped producers are squeezed to meet operating
expenses and pay off bank notes. One of the major successes of Chapter 12 has
been that it gives farmers added leverage when working with their lenders. It
helps get the borrower and the banker to sit down and work out alternatives for
debt repayment. An undersecretary for the USDA accentuated the Farm Belt's
troubled economy recently by describing it as "an island of despair in a sea of
national prosperity." Chapter 12 gives financially-stressed farmers, who may
feel isolated and without hope, somewhere to turn. It gives family farmers room
to recover from their economic crunch and still hold on to their livelihood.
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