"Chapter 12 has proven itself and deserves to be a permanent part of the bankruptcy code," Grassley said. "It gets the borrower and the lender to sit down and work out alternatives for debt repayment, and it gives farmers more leverage than they'd otherwise have."
Chapter 12 is tailored to help farmers reorganize debt and stay in the business of farming. It is the only temporary chapter in the code.
The Senate voted 93 to 0 for an amendment offered last night by Sens. Jean Carnahan of Missouri and Tim Hutchinson of Arkansas.
Grassley said the show of support for Chapter 12 underscores the importance of taking final action on the comprehensive bankruptcy bill he authored which not only makes Chapter 12 permanent, but also makes other bankruptcy and tax improvements for farmers. His broad-based bankruptcy legislation passed the Senate last March by a vote of 83 to 15. It is currently in a House-Senate conference committee.
In addition to making Chapter 12 permanent, Grassley's proposal would expand family farmer eligibility for Chapter 12 bankruptcy protection by updating the criteria for the first time since 1986. It would also reduce the capital gains tax burden for farm assets sold as part of a reorganization plan. This would allow farmers to sell grain, livestock and other farm assets to generate cash flow, which is essential to maintaining a farm operation in bankruptcy.
Grassley sponsored the legislation which created Chapter 12 during the farm crisis of the 1980s. Since then, Congress has acted numerous times to extend Chapter 12 for specific periods of time. The last extension expired on October 1. Last November, the Senate Judiciary Committee approved a six-month extension offered by Grassley and Carnahan, but the full Senate has not acted on the measure.
"Chapter 12 should be made a permanent part of the bankruptcy code, brought up to date and refined for better tax treatment. Farmers shouldn't be treated like second-class citizens and have to come begging to Congress every six months in order to keep this provision in the bankruptcy code," Grassley said.
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.
Grassley is a senior member of the Senate Judiciary Committee, where all bankruptcy legislation is considered.