CONTACT: MELVIN O. SHAW
100 Old Public Library
Iowa City IA 52242
(319) 384-0010; fax (319) 384-0024
Release: March 29, 1999
Law Professor: Chapter 12 farmer bankruptcy provision should be made permanent
IOWA CITY, Iowa -- Congress recently enacted a six-month extension of Chapter
12, the 13-year-old provision that allows farmers to restructure debt. It
was set to expire March 31, and while the extension is good news for farmers,
the unpredictability of whether the law will be effective after October could
leave many farmers facing financial uncertainty, says Pat Bauer, a University
of Iowa College of Law professor
Chapter 12 has now been renewed three times since it was enacted in 1986
in response to the widespread and severe farm debt crisis of the 1980s. Chapter
12 provides farmers a way to adjust their debts so they are more in line with
their assets and their current ability to pay creditors. Without it, Bauer
says, many farmers will find it harder to survive if they are financially
"There are storm clouds on the horizon" for a family farm crisis, says Bauer,
who specializes in agricultural finance law. He cites steadily declining pork
and grain prices as examples of problems that could worsen if farmers are
left without a safety net.
"The projections for agricultural income growth is low. If the economy goes
south," family farmers will be adversely affected, Bauer says. In Iowa, state
revenues have fallen below projections because of a lagging farm economy by
an estimated $160 million.
"One of the most compelling reasons for a permanent Chapter 12, is it would
protect family farmers if a severe natural or financial catastrophe were to
occur" in the agricultural industry.
"If history is any guide, the absence of an existing provision specially
adapted to the particular needs of family farmers will result in adverse circumstances,"
Bauer says the farm crisis that befell many farmers in the 1980s was three
years old before farmers began to receive government attention. That gap in
time results in short-term problems that could be avoided, he says. Farmers
could file for Chapter 13 protection, but it covers individuals only and then,
only a limited amount of debt with shorter repayment periods, Bauer says.
In 1997 Sen. Charles Grassley, R-Iowa, who was the principal author of Chapter
12 legislation, unsuccessfuly led an effort to make the law permanent. The
House Judiciary Committee approved the extension that passed the House by
a vote of 421-0.
More than 11,000 farmers have filed for Chapter 12 bankruptcy since it has
gone into effect. Bauer says making Chapter 12 permanent is reasonable, that
there is little cost to consumers during good times and that it averts a broader
crisis for the nation when it is widely needed and used.