Bankruptcy has always been a mixed blessing for farms and ag product companies. On the one hand, Chapter 12 buys relief from creditors, and lets farmers catch their breath and reschedule debt repayment without having to sell critical machinery and equipment.
On the other hand, Chapter 12 was tough for many farm companies to comply with. Many were forced by narrow restrictions to get out of the business altogether.
But there’s good news. In October 2017 President Trump signed the Family Farmer Bankruptcy Clarification Act of 2017, which provides struggling farmers with greater flexibility in reorganizing under Chapter 12.
What the act does
This act reverses a U.S. Supreme Court ruling that made it hard for distressed farmers to discharge capital gains tax on properties sold after filing their Chapter 12 petition. That ruling put an unwieldy burden on farmers looking to resolve tax obligation issues by reorganizing.
The new law may be a small fix, but it will have a noticeable impact on the financial health of farms in Florida and elsewhere. It allows farms and ag companies to sell property while filing for Chapter 12 without the loss of capital gains benefits.
In short, it makes Chapter 12 more attractive than ever for beleaguered farm companies.
Chapter 12 remains complex and challenging – not a process to enter into without the guidance of experienced counsel. But the new law gives breathing room for businesses struggling to stay alive while the ag economy recovers from bad weather and uncertain markets.