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March 28, 2019

Congress Considers Increasing Chapter 12 Debt Limit

 |  By: Anna-Lisa Laca

In light of the farm economy, several lawmakers are pushing Congress to consider raising the debt limit on Chapter 12, a bankruptcy code created in 1980s specifically for farmers. While Congress has made several changes to the code over the years, increasing the debt limit of $4.1 million to allow more farmers to qualify is a change that has repeatedly stalled on the Senate floor.

The change most recently failed in December when Sen. Charles Grassley (R-IA) and Sen. Amy Klobuchar (D-Minn.) introduced a measure to increase the limit to $10 million. Just this week, Klobuchar told CNBC she plans to reintroduce the bill.

“As farm income has declined over multiple years since 2013, the number of reported farm bankruptcies has begun to increase,” the Congressional Research Service said in a report this month. “A policy concern has arisen over whether the $4.153 million Chapter 12 debt limit should be raised to allow larger farms to qualify for this bankruptcy option in light of the recent family farm financial stress, the rise in the number of bankruptcies, and the growth in the average size of farms.”

The National Farmers Union is quick to point out that even small farms don’t meet the current Chapter 12 debt requirements., specifically, dairy farms which are going out of business rapidly in many areas. A new report from the Wisconsin Policy Institute called “Going for Broke in America’s Dairyland?” examined the correlation between low milk prices and the increase in Chapter 12 bankruptcies filed by small farms of all types in Wisconsin.

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What the study found is that milk prices have declined 33% since their recent high in 2014, while Chapter 12 bankruptcies more than doubled from 22 in 2014 to 50 in 2017, the last year for which complete figures are available.

Total filings have increased across 19 states, according to the Congressional Research Service. However, American Farm Bureau Market Intel research shows Chapter 12 filings in 2018 totaled 498 and were down 1%, or three filings, from the 2017 calendar year.

“We had fewer farm bankruptcies in 2018 than the year before. We also likely had fewer farms in the United States in 2018 relative to 2017,” explains John Newton chief economist at American Farm Bureau Federation. “Therefore, while the total number of farm bankruptcies was lower in 2018, it’s possible the number of farm bankruptcies as a share of total farm operations was higher.”

Additionally, Newton says it’s difficult to determine how many farmers filed bankruptcies under other bankruptcy chapters.

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