"Chapter 12 gives hope to financially-strapped farmers who feel that they have no where to turn. It gives them room to recover from an economic crunch and still hold on to their livelihood. It's vitally important to keep Chapter 12 in place to help farmers who otherwise could face foreclosure," Grassley said.
Chapter 12 is the only temporary chapter in the federal bankruptcy code. It was created in 1986 by Grassley-sponsored legislation. Since then, Congress has acted numerous times to extend Chapter 12 for specific periods of time. The last extension expired on October 1. Grassley said that the bipartisan measure he introduced late Monday with Sen. Jean Carnahan will make the section retroactive to October 1 and extend it until April 1, 2002.
In recent years, Grassley has been advocating a comprehensive overhaul of the nation's bankruptcy code that would also make Chapter 12 a permanent part of the bankruptcy laws. The proposal advanced by Grassley would also 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 in bankruptcy.
Grassley's overall bankruptcy reform bill was approved by senators in March on a bipartisan vote of 83 to 15. A similar measure had passed the House of Representatives earlier. The Senate and House need to reconcile their versions of bankruptcy reform before it can be sent to the President for his signature. The first conference committee meeting on comprehensive bankruptcy reform is scheduled for November 14.
"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. This protection is critical right now as many cash-strapped producers are squeezed to meet operating expenses and pay off bank notes."
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.