Farm Debtors Fare Better in Bankruptcy After BAPCPA
By Jill Michaux, Kansas Bankruptcy Attorney on Oct 17, 2007 in Bankruptcy Practice and Procedure, Benefits of Bankruptcy, Debts Not Dischargeable, General Bankruptcy Information, Kansas, Life After Bankruptcy, Tax Issues
The bankruptcy amendments are generally thought to be hostile to debtors. But farmers in financial distress are better off after BAPCPA than before.
Chapter 12 for family farmers was made a permanent part of bankruptcy law by BAPCPA after multiple extensions and several periods of lapses since chapter 12 was enacted in 1986. The coverage was expanded to family fisherman.
The chapter 12 eligibility rules were expanded by doubling the maximum debt limit for a family farmer from $1.5 million to more than $3 million. The debt limit now will increase over time as the Consumer Price Index changes. The old law required 80% of the debt to be farm related and that rule was relaxed to 50%. The farm income rules were loosened to help those farmers who take off farm employment to help with family farm finances prior to filing for bankruptcy.
Chapter 12 bankruptcy attorneys report the most significant change for family farmers is the modification of priority status for certain tax claims in bankruptcy. Debtors in chapter 12 can now reorganize their operation by selling a portion of the farm real estate and treating the resulting capital gains tax as an unsecured, not priority, claim. The claim is discharged in the bankruptcy if the farmer successfully completes his chapter 12 plan. Previously, selling inherited farm land with a low tax basis created an unaffordable tax that sabotaged the success of the chapter 12 plan.
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