Q: What is Chapter 12?
A: The only temporary section of the federal bankruptcy code, Chapter 12 applies to farmers and ranchers who seek relief from creditors while reorganizing their debt. Re-enacted 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. It was first written to help family farmers survive the Great Depression and expired in the early 1950s. Unlike Chapter 11 of the bankruptcy code, which governs debt reorganizations for non-farm businesses and corporations, Chapter 12 addresses the unique circumstances 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. For the last several years, I have led an effort to overhaul the nation’s bankruptcy laws including a provision to expand and make Chapter 12 a permanent fixture of the U.S. bankruptcy code.
Q: What’s the hold-up to secure Chapter 12’s place on the books once and for all?
A: The surest way to make Chapter 12 permanent is through its inclusion to the comprehensive bankruptcy reform package. The overall reform bill was approved by the Senate in March 2001 with an overwhelming bipartisan vote of 83 to 15. Unfortunately, since then my reform bill has fallen victim to deadlock and delay. That’s why it’s necessary for me to continue my fight to win temporary extensions for Chapter 12 to prevent its expiration. This summer I won passage of an extension retroactive to July 1, 2003 through Jan. 1, 2004. Although I would prefer action on the overall reform bill, I’ll continue my efforts to extend Chapter 12 on a temporary basis if that’s what it takes. As a farmer-lawmaker, I’m proud to give family farmers a voice at the policy tables in Washington. Besides working to make Chapter 12 a permanent safety net for farmers struggling to stay in business, my bankruptcy reform bill also would expand eligibility for family farmers seeking protection under Chapter 12 and reduce the capital gains tax burden on farm assets sold as part of a reorganization plan. This would allow farmers to generate much-needed cash flow by selling grain, livestock and other farm assets with a reduced tax burden. Chapter 12 is a high priority for me and I’ll continue working in Washington to keep this safety net of last resort in place for family farmers who have fallen on hard times.