What happens to the family farm in bankruptcy?

Unfortunately, it is common for individuals in the agriculture industry to face financial challenges in today’s world. Family farms work hard to provide New Mexico residents with some of the most basic needs, yet they may be struggling to pay their bills and secure their own needs.

There are options for family farmers to seek relief from debt and the financial challenges they face, but the thought of bankruptcy leads many farmers to worry about whether they will lose their property, their livestock and their livelihood?

Can you seek debt relief and keep the farm?

Chapter 7 and Chapter 13 bankruptcy are some of the most well-known forms of debt relief. These options may worry farmers, particularly Chapter 7’s liquidation of assets to pay off debts.

However, they are not the only options available. In fact, family farmers have a specific chapter designed to help them:

  1. Manage their debts and obtain debt relief
  2. Protect their interests throughout the process

Congress added Chapter 12 as a debt relief option in 1986, making many changes and additions in recent years. Family farmers must meet the conditions that make them eligible to file, but this option allows farmers to maintain ownership and operation of their farm and livestock during and after the bankruptcy process.

How does Chapter 12 bankruptcy work?

The goal of Chapter 12 is to help farmers achieve debt relief while they continue to operate their family farms. But how does that work?

Like with any type of bankruptcy or debt relief option, it is a good idea to obtain guidance tailored to your particular situation. However, some of the highlights of Chapter 12 are:

  • Chapter 12 has adjusted debt totals and income requirements to increase eligibility specifically for farmers
  • When farmers file, the automatic stay will go into place, preventing further claims, repossession, collections or enforcement
  • Farming families will make a repayment plan to manage their debts, similar to Chapter 13
  • Chapter 12 also allows farmers exemptions, unlike other business bankruptcies
  • Once the repayment plan is complete – over three to five years – farming families can get the remaining debts discharged

It is possible for family farmers to leave debt behind them and move forward. Chapter 12 can give them the opportunity to keep the farm in the family and continue their legacy in the agriculture industry.