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A New Law Allows More Farmers To Qualify For Bankruptcy, And Some Are Thinking About It

In Southwestern Nebraska, a soy plant withers after an unusually wet spring collapsed an irrigation canal.
Christina Stella
In Southwestern Nebraska, a soy plant withers after an unusually wet spring collapsed an irrigation canal.

It’s a difficult year for many farmers in the United States.  A wet spring flooded crops and delayed planting across the Midwest, while trade conflicts with China and other countries continue to wreak chaos on incomes.

For some farms, this year’s losses, even with federal trade-relief payments, will force them to file for Chapter 12 bankruptcy. And that's easier now that a new law raised the level of debt allowed for a Chapter 12 filing.

Nebraska’s Rural Response Hotline has received more calls than last year from farmers considering their options, said Michelle Soll, who works for the hotline.

“There's a lot a lot of farmers and ranchers that are sitting on the fence. There's so many factors that play into ... their operation that they're just kind of wondering how it's all going to turn out for the year,” she said.

Chapter 12 is an agriculture-specific bankruptcy filing geared toward helping farms stay open while allowing them to pay creditors. Before this year, farmers with more than $4.1 million of debt didn’t qualify for relief. President Donald Trump in August signed the Family Farmer Relief Act, which raised the debt limit to $10 million.

“We are definitely seeing an uptick in (Chapter 12) filings,” said Scott Irwin, an agricultural economist at the University of Illinois. “But there's nothing in what we've seen so far that looks anything like the 1980s or the early ’90s.”

Irwin said the U.S. Department of Agriculture’s Market Facilitation Payments is probably helping some farmers avoid filing for bankruptcy this year. But these payments to farmers hurt by recent trade disruptions are just a temporary help, he said, and U.S. farm incomes will continue to diminish unless trade relations with China improve or future global production problems lifts prices.

“We have this huge hole represented by lost sales to China. I think farmers realize that these kind of one-off massive trade payments aren't going to be maintained permanently,” he said.

A total recovery would be neither linear nor guaranteed for farmers,  Irwin added. 

Follow Christina on Twitter at: c_c_stella

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Christina Stella