10/21/98

Contacts:
Neil E. Harl, Economics, 515/294-6354
Susan Thompson, Agriculture Information, 515/294-0705

CHAPTER 12 BANKRUPTCY LAW EXTENDED SIX MONTHS

AMES, Iowa -- A federal bankruptcy provision designed specifically for family farms that expired Sept. 30 has been extended six months.

Chapter 12 was enacted in 1986 for an initial seven-year term. The objective was to give family farms impacted by the financial crisis of the '80s a chance to restructure debt and attempt to stay in business.

Neil E. Harl, an Iowa State University economics professor, says Chapter 12 was passed because there was a realization that Chapter 11 -- the general reorganization provision -- was not working for farmers.

"If a farmer filed under Chapter 11 and could not get a bankruptcy plan confirmed, creditors could file a liquidation plan and liquidate the farmer," Harl says. "Chapter 12 was tailored to fit the needs of family farmers, and limited relief to those with no more than $1.5 million in debt."

Chapter 12 was extended five years in 1993, but expired at the end of September. A provision to make Chapter 12 permanent was included in the Bankruptcy Reform Bill debated in Congress in October. But in the waning days of the 1998 session, that bill did not pass. So supporters of Chapter 12 pulled it from the larger bill and got it extended until Apr. 1, 1999.

Harl says besides giving farmers an opportunity to restructure debt, having the Chapter 12 bankruptcy provision on the books impacts negotiations. "Our research shows if both debtors and creditors know Chapter 12 is available, it affects negotiating positions," Harl says.

Harl says if Chapter 12 is allowed to expire again in April, "farmers seeking bankruptcy protection will need to resort to other reorganization provisions that don't fit their situation as well."

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