Examining Personal and Farm Debt in Chapter 12 Bankruptcy Filings

Abstract

Chapter 12 bankruptcy in the United States Bankruptcy Code is designed to allow farmers to reorganize and restructure their debt in order to continue operating as the debts are repaid to the creditors (Dixon et al., 2002). This is a unique chapter in the United States Bankruptcy Code due to the debt requirement of at least 50 percent of the total debt stemming from the farming operation. This means there is potential for a significant amount of non-farm debt as part of the bankruptcy filing, essentially allowing for the simultaneous filing of a consumer and farm bankruptcy case. This research investigates how the composition of farm and personal debt varies across chapter 12 filings. It is focused on the initial bankruptcy filings with the courts, capturing a filer’s perception of their debt composition at the time when they seek assistance from the court. Using data from PACER and the Federal Judicial Center Integrated Data Base (IDB), t-tests were conducted to determine if specific debt compositions resulted in statically significant differences between the means of real property as a percent of total assets, the amount of real property, and total liabilities. Farm bankruptcy is also acknowledged as an indicator of financial stress within the agricultural industry (D’Antoni et al., 2009). Due to this, this research also examines how farm income and loan delinquency rates for personal and farm debt relate to the number of farm bankruptcy filings. Findings include a positive relationship with net farm income, delinquent loans secured by farmland, delinquent agricultural production loans, and delinquent credit card loans, indicating these broader financial measures are related to bankruptcy filings in the United States.