overview
Bankruptcies are important developments in rural areas, particularly during periods of general economic stress. The Family Farmer Bankruptcy Act of 1986 created Chapter 12 of the bankruptcy code, designed specifically to assist family-size farms reorganize their debts so they can stay in farming. Like other bankruptcy provisions, Chapter 12 has benefits and costs. While Chapter 12 has kept some farmers in business, it has also increased costs by encouraging inefficient farmers to reorganize and continue farming under the protection of bankruptcy rather than liquidating their assets. ERS research focuses on the factors determining the level of farm bankruptcies over time, their economic costs, and their distributional consequences.

contents

• An historical perspective of farmer bankruptcy
• Chapter 12

Farm Financial Stress and Bankruptcy Trends—Results from the American Bankers Association's annual farm credit survey illustrate of changing farm credit conditions as viewed by agricultural bankers. Banker responses indicate that farm financial stress by most indicators has begun to edge up in the last 2 years (2000-2002) in response to low agricultural commodity prices. Nonetheless, farm financial stress remains far below levels experienced in the mid-1980s.

recommended readings
Are Farmer Bankruptcies a Good Indicator of Rural Financial Stress?—The historical experience with farmer bankruptcy rates is traced and farmr bankruptcy provisions as a policy instrument are discussed.

Do Farmers Need a Separate Chapter in the Bankruptcy Code?—The rationale for Chapter 12, a special section of the bankruptcy code enacted in 1986 for farmers, is discussed and Chapter 12's successes and limitations are evaluated. Chapter 12 was enacted in 1986 as a temporary measure to protect financially stressed farmers from liquidation through bankruptcy proceedings. It was originally scheduled to expire on October 1, 1993, but the law has been extended ten times and will expire January 1, 2004. Efforts are underway to make Chapter 12 a permanent part of the Federal Bankruptcy Code. A permanent Chapter 12 has been part of Omnibus bankruptcy legislation introduced begining with its 105th Congress (1997-98) and continuing to the 108th Congress (2003-2004). Chapter 12 succeeded in keeping some farmers in business, both those completing a Chapter 12 reorganization and those who, because of the threat of Chapter 12, were able to arrive at a settlement with their creditors through less formal means. Nonetheless, research has shown that Chapter 12 provisions can impose costs on society.

questions and answers
Important questions and answers about bankrupties.

related briefing rooms

• Farm financial management
• Farm risk management
• Farm income and costs
• Farm structure

related links
U.S. Courts—Contains bankruptcy data, publications, directories, news, and information about U.S. courts, answers to frequently asked questions, and related information.

for more information, contact: Jim Ryan
web administration: webadmin@ers.usda.gov
page updated: August 17, 2004