CS-Lancaster Fanning, Saturday, Dacambar 6,1986
Bankruptcy Rules May Save Farms
NEWARK, Del. - A new section
of the federal bankruptcy code that
became effective Nov. 26 could
help farm falnilies with serious
financial problems, according to
University of Delaware extension
agricultural economist Gerald F.
Vaughn.
Chapter 12 was created
especially for family farms,
Vaughn says. It offers farmers a
chance to lower their debts,
reorganize their loan payments
and stay on their farms.
But Vaughn isn’t sure many
farmers will take advantage of the
new bill. “Farmers are un
derstandably reluctant to file for
bankruptcy," he says.
“Bankruptcy filing is a legitimate
business decision, but it can be
very expensive and stressful for
the entire farm family.”
Chapter 12 was written by Chief
Judge Thomas Moore and Judge A.
Thomas Small of the U.S.
Bankruptcy Court. They explained
the section recently for attorneys
attending an extension-sponsored
conference in Raleigh, N.C., on
advising farmers in financial
distress.
Farmers who borrowed when
land values were high but who are
now caught with more debt than
assets may reduce the amount of
farm debt under the new
provisions.
A farmer who borrowed $1
million against high-valued land
that is now worth $600,000, for
example, could have the loan
reduced to $600,000. In addition, the
farmer could refinance at current
interest rates, which are likely to
be much lower than when the
Protect Trees
Against Mice
During late Fall, one
numerous pest around
our shrubbery, flower
beds and fruit trees are |
meadow mice. These
small, chunky, ground
dwelling rodents are
locally called meadow
voles or field mice.
They’re found wherever
grass and woody plants
grow.
As strict vegetarians,
they’re active all year
round in extensive
grassy and weedy
areas. But, as green
vegetation becomes
scarce, they invade
lawns, gardens and
plant nurseries.
Several hundred mice
may be present on any
given acre of land
making them extremely
destructive pests to 1
vegetation around the
home. During late Fall,
winter and early spring,
they may gnaw the bark ;
of young trees and j
shrubs. Trunk girdling
at or near the ground
surface is the most
common form of tree
injury caused by
meadow mice. Since
they burrow in snow,
they may damage tree
trunks as high as snow
accumulates.
Sometimes girdling
injury can be repaired
by bridge grafting, but
tree growth is usually
set back severely.
Meadow mice can even
burrow into the soil and
may cause damage to
tree roots. This damage
cannot be seen and
cannot be repaired.
Eventually, damaged
trees become weak,
unhealthy looking and
die.
original debt was incurred.
The farmer in Chapter 12
bankruptcy cannot be forced into
liquidation as can happen when a
farmer files under other chapters
of the bankruptcy code.
Chapter 12 also redefines what
constitutes “adequate protection
of lenders’ interests.” Previously,
farmers faced an immediate bill
for “lost opportunity costs” when
they filed under existing sections
of the bankruptcy code. Lost op
portunity costs is the amount of
interest the lender could receive if
the money had been invested
elsewhere.
Under Chapter 12, lender in
terests are considered protected if
assets are being properly main
tained and, in some cases, if the
lender is receiving fair market
rent for their use—usually much
less than required under other
bankruptcy options, Vaughn says.
Only family operated farms with
total debts under $1.5 million are
eligible to file for Chapter 12. Also,
80 percent or more of the total debt
must be from the actual farming
operation, and 50 percent of the
previous year’s income must have
come from farming.
Chapter 12 won’t be a solution for
everyone, the University of
Delaware extension economist
says, but it seems to offer a better
alternative than farmers have had
under existing chapters of
bankruptcy law.
Chapter 12 reorganization will
leave the farmer 100 percent in
debt. “Farmers who file under
Chapter 12 won’t be able to con
tinue farming very long unless
they’re very good farm managers,
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and become good financial
managers,” Vaughn says.
They must have enough income
to pay off operating expenses as
well as any debt remaining after
reorganization. This often means
having to cut the family’s standard
of living to the absolute minimum.
And they must be lucky with such
factors as weather and govern
ment policies, the specialist adds.
Farmers who have already filed
for bankruptcy under another
chapter of the law will not be
allowed to switch to Chapter 12.
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October, 1986
No. In
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(Turn to Page C 7)
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