Betting on Farms: Feasible Chapter 12 Plans

Abstract

Farming is inherently risky. America’s smaller family farmers operate subject to the hazards of weather, the markets, and changes in government policies. Any one of these factors alone may wreak financial havoc on farms, especially those operating with razor-thin margins and teetering on the brink of insolvency. But when these factors combine, as they have in recent history, they threaten to decimate America’s smaller farming operations, which comprise 90 percent of farms in the United States.

Chapter 12 of the U.S. Bankruptcy Code provides a solution for this special category of honest but unfortunate debtors. Congress created Chapter 12 as a temporary, emergency response to the 1980s farm crisis and made it permanent in 2005. It is a restructuring tool designed to “give [family] farmers a fighting chance to reorganize their debts and to keep their land” through a repayment plan confirmed by the bankurptcy court.

Among the requirements for plan confirmation is a feasibility test. Feasibility is bankruptcy law’s shorthand for the court’s assessment of the probability of actual performance of the debtor’s proposed plan. The test requires bankruptcy courts to consider and weigh objective evidence in the record about whether Chapter 12 debtors realistically can achieve their reorganization plans while accounting for the risks inherent in farming. An affirmative feasibility determination is a bankruptcy court’s calculated prediction about the continued financial viability of the farm.

This paper qualitatively examines the feasibility requirement and provides insight about formulating feasible Chapter 12 plans. Plan feasibility is commonly litigated in Chapter 12. When bankruptcy courts resolve feasibility disputes, they make key findings about the ability of Chapter 12 debtors to perform their proposed plans. These findings, when viewed in the aggregate, provide debtors and their attorneys guidance for structuring feasible plans and navigating feasibility challenges.