"The President's action is good news for family farmers faced with financial difficulties," Grassley said. "Chapter 12 gives financially-stressed farmers, who may feel isolated and without hope, somewhere to turn. It gives family farmers room to restructure their debts and still hold on to their land and livelihood."
Chapter 12 is the only temporary chapter in the federal bankruptcy code. It expired last October. This action keeps the section on the books until June 1, 2002. "It's a stopgap measure to continue the program until we enact the bankruptcy reform bill, which will make the provision permanent," Grassley said.
After the Senate passed the temporary extension last month, Grassley wrote a letter to President Bush urging him to sign the legislation as soon as he received it.
Chapter 12 was first written to help family farmers survive the Great Depression. The law expired in the early 1950s. During the farm crisis in the mid-1980s, Grassley led the effort in Congress to bring back this safety net for family farmers facing economic collapse.
In recent years, Grassley has been advocating a comprehensive overhaul of the nation's bankruptcy code which would also make Chapter 12 a permanent part of the bankruptcy laws. In addition, part of Grassley's broad-based proposal would expand family farmer eligibility 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.
Grassley's overall bankruptcy reform bill was approved by senators in March with a bipartisan vote of 83 to 15. The Senate and House negotiators are currently meeting to reconcile their versions of bankruptcy reform. They must come to a compromise on the legislation before they can send the bill to the President.
"While comprehensive bankruptcy reform is in its final stages of debate, I pushed for this temporary extension of Chapter 12 to help address immediate bankruptcy problems for family farmers," Grassley said. "Right now, 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," 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.