By MICHELE F. MIHALJEVICH

Indiana Correspondent

WASHINGTON, D.C. — A bill calling for an increase in the Chapter 12 operating debt cap to $10 million would allow more farmers to use the bankruptcy option, according to backers of the federal legislation.

The Family Farmer Relief Act of 2019 (S.897) would raise the debt cap from the current $4.15 million. The bipartisan bill was introduced March 27 by Sen. Chuck Grassley (R-Iowa) and cosponsored by four Democrats and three Republicans. The measure has been referred to the Senate judiciary Committee.

Chapter 12 is a bankruptcy option only available to family farmers and fishers. It was established in 1986. By providing relief to small to mid-size farms, the legislation can ensure more successful reorganizations, Grassley said.

“For family farmers whose assets are largely tied up in land and essential equipment, reorganizing debts can be particularly challenging when falling on hard times,” he explained. “As low commodity prices force farmers to take on more debt, this bill guarantees a safety net is in place for more farmers who need help getting back on their feet.”

The idea of raising the debt cap has been discussed by several different Congresses, noted Bob White, Indiana Farm Bureau’s director of national government relations.

“With land prices and the value of machinery, it doesn’t take long to wrap up (the current debt cap),” he said. “It needed to be increased. A farmer could have $2 (million) to $3 million in equipment and then you add real estate on top of that. The current debt cap forces farmers to commercial business reorganization, which really isn’t kind to family farmers.

“We’re happy to see (the legislation). Ten million dollars in Indiana will catch the greatest majority of our farmers. We’re pleased they’re going to try (to raise it), and $10 million is a good start.”

Chapter 12 bankruptcy filings nationwide dropped from 501 in 2017 to 498 last year, according to a study of court records by the American Farm Bureau Federation (AFBF). For states in this region, filings were up by four in Indiana and two in Illinois in 2018, the AFBF said. Bankruptcy filings were down by six in Michigan, five in Iowa and Kentucky, three in Ohio, and two in Tennessee.

Overall, 19 states saw an increased number of Chapter 12 bankruptcy filings in 2018 over 2017.

While the number of filings were down last year, there were also fewer farms, AFBF pointed out. The organization has estimated that the bankruptcy rate per 10,000 farms climbed slightly in 2018.

The legislation would allow additional family farmers to seek relief through Chapter 12 bankruptcy, said AFBF President Zippy Duvall. More farmers are experiencing hard times because of uncertainty in some export markets, declining prices of certain commodities, and other factors.

“Our farmer members have experienced several consecutive years of weak commodity prices and the low profitability and poor farm income that follow,” Duvall noted. “As a result, farmers and ranchers are watching their equity erode as their debt-to-asset ratios climb and debt financing reaches a 30-year-high.

“The double-whammy of record farm debt and poor economic conditions has led many farmers to seek Chapter 12 bankruptcy as a debt relief and restricting option.”

Chapter 12 removes certain costly reorganization requirements intended for large corporations, AFBF said. Allowing more farmers to participate in Chapter 12 bankruptcy would provide the restructuring and seasonal repayment flexibility they need, Duvall said.

Last Thursday, the House Agriculture Committee reported bipartisan cosponsors introduced a companion bill in that chamber that was referred to the Judiciary Committee for consideration.