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The founders of our country believed that debtors should have an opportunity for a fresh start. The Constitution authorizes Congress to create bankruptcy laws. U.S. Const. Art. I, Sect. 8. The U.S. Supreme Court has stated, “Bankruptcy gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). This fresh start occurs through a “bankruptcy discharge,” which generally releases debtors from personal liability for certain debts, preventing creditors from collecting those debts in the future.
Note: This case was reversed on appeal on 11/25/2020.
A bankruptcy court recently ruled in a Chapter 12 case that federal and state taxing authorities do not have the right to offset a refund with tax debt stripped of its priority by 11 U.S.C. § 1232. This was a court’s first opportunity to rule on this question since the passage of the Family Farmer Bankruptcy Clarification Act of 2017. The case was In re DeVries, No.19-00181 (Bankr. N.D. Iowa April 28, 2020).
As we move into 2020, we're dedicating this post to reviewing important agricultural law developments from the past year. Most of these issues continue to evolve, and we look forward to providing updates as they occur. Happy new year!
As many farmers continue to struggle with high debt and uncertain markets, new attention is focused on remedies for financially distressed farmers. President Trump signed into law the Family Farmer Relief Act of 2019 on August 23, 2019. This law increases the amount of debt a farmer may have, yet still remain a “family farmer” eligible for Chapter 12 bankruptcy protection.
Update: President Trump signed this bill into law on August 23,2019.
In this webinar for I-29 Moo University, Don Swanson and Kristine Tidgren address practical financial, tax, and bankruptcy issues impacting producers facing financial distress.
As the year concludes, we’re taking some time to review the most significant happenings in agricultural law and taxation in 2017. Some closed chapters on drawn-out litigation or administrative action. Others signal the beginning of much more activity to come. In any event, 2017 did not disappoint in terms of lots to discuss. We review these highlights below, in no particular order.
Update: On October 26, 2017, President Trump signed this bill into law.
During a financial downturn, even secured creditors often find themselves with no real recourse. Junior lienholders, in particular, are often left in the cold, even when It seems there is enough collateral to go around.
A recent bankruptcy case illustrates this fact.
A federal bankruptcy case has been shaping interpretation of the Iowa agricultural supply dealer lien statute since the operator of a farrow-to-finish hog facility declared bankruptcy in 2009.
Regrets exist, for many farmers and bankers from the 1980s Farm Crisis days, over opportunities-lost.
As the general economy continues to struggle, the farm economy will have another tough year. Crop prices have declined significantly from where they were a couple of years ago, and financial stress among producers is increasing. In the general economy, the March 2015 jobs report tells an awful tale – a record 93.175 million Americans 16 years old and older are not working, the January and Feb
The United States Bankruptcy Court for the Northern District of Iowa recently ruled in favor of the debtors in an adversary action brought by their bank. The bank argued that the debtors’ obligations under a promissory note and an agricultural security agreement should be excepted from discharge in their Chapter 7 bankruptcy under 11 U.S.C. § 523(a)(6).
The drop in crop prices in recent months has introduced financial strain for some producers. Bankruptcy practitioners that we know are reporting an increase in clients dealing with debt workouts and other bankruptcy-related concerns. We will produce a technical article for TaxPlace on the debt discharge rules for farmers, but below is an outline of the basics.
Law school graduation occurred in May of 1980, and the law firm job interview concluded with this question: “Don, would you like to do bankruptcy?!” Figuring I needed a job, “Yes,” came the response. And so began my career as a bankruptcy attorney in Omaha, Nebraska.
Not since the farm crisis of the 1980’s have droves of farmers been asking how to find an attorney as they make their financial plans for the 2015 farming season. The early decision to seek legal counsel may significantly benefit a farm’s continued operation, and selecting the right attorney to guide a farm through the maze of legal obstacles is a crucial step in that process. Delaying consultation with legal and tax experts will not make the problem go away. Delay will invariably lead to the farmer having fewer options for a successful reorganization.
The United States Bankruptcy Court for the Northern District of Iowa has issued another opinion clarifying the scope of the agricultural supply dealer’s lien under Iowa Code Chapter 570A. This time, the feed supplier prevailed.
On June 12, the U.S. Supreme Court ruled that a bankruptcy debtor’s inherited IRA does not constitute “retirement funds” and, as such, is not exempt from creditors. The Court’s opinion has planning implications for clients, but the Court’s holding may not have application to debtors in all states.
In re Woods, No. 12-1111, 2014 U.S. App. LEXIS 2960 (10th Cir. Feb. 19, 2014), rev'g. bankruptcy court opinion and B.A.P. opinion reported at 65 B.R. 196 (B.A.P. 10th Cir. 2012)
On January 31, the U.S. House passed H.R. 2642, the “Agricultural Act of 2014” on a 251-166 vote.
We begin 2014 with our annual look at the most significant agricultural law developments of the previous year. Legal issues continue to be at the forefront of developments that are shaping the present and future of American agriculture, and it is very likely that the involvement of the legal system in agriculture will continue to grow. The following is my list of what I view as the top ten agricultural law developments of 2013 based on their impact (or potential impact) on U.S. agricultural producers and the sector as a whole.
Well, 2013 expired without tax legislation that would extend expiring provisions and without a Farm Bill.
With the number of days that the Congress will be in session the remainder of the year dwindling away, it is looking more likely that there won’t be a new Farm Bill. The Senate passed its bill last June (S. 954) and the House passed their bill in September (H.R. 2642).
House and Senate conferees continue attempts to hammer out a Farm Bill. The present Farm Bill was extended by the ATRA provisions to September 30, 2013, and has since expired.
In mid-September the IRS issued Final Regulations designed to give guidance on how to draw the line tax-wise between currently deductible repairs and maintenance expenses that have to be capitalized.
At the upcoming Agricultural Law seminar on September 12, 2013 one of the topics to be discussed will involve self-defense issues and liability issues with respect to firearms. That has become a big issue recently.
When a farmer files bankruptcy, farm equipment and implements may be claimed as exempt from creditors under Iowa law. Here, the debtors filed for Chapter 7 bankruptcy and claimed only a tractor and four-row planter as exempt even though they had numerous other items of farm equipment and implements. Their lawyer had mistakenly believed that they had quit farming, but when he realized that wasn’t correct he amended a schedule to claim all of the debtors’ farm equipment and implements as exempt and motioned to avoid liens against all of the equipment.
This case involved the question of whether, under Iowa law, a bankruptcy court’s order voiding a debtor’s transfer of real estate to a transferee automatically returns the property title to the debtor. The debtors were farmers. After getting hit with a $127,125 judgment in 1998 for breaking a grain contract, they began suffering financially. In 2001, they formed a limited liability company (LLC) and appointed themselves managers. They transferred all of the farm property to the LLC.
During July, the economy continued to struggle. That merits attention on behalf of your clients and continues to put an emphasis on what might be done from a tax planning standpoint to make sure that no more taxes than necessary are being paid.
The vast majority of bankruptcies are filed voluntarily by the debtor. But, U.S. bankruptcy law provides also for involuntary bankruptcy by action of the creditors unless the debtor is a farmer. For this purpose, a “farmer” is defined as a person who, during the year immediately preceding the tax year in which the bankruptcy petition is filed, received more than 80 percent of their gross income from a farming operation that the person owned or operated.
The plaintiff bought products from JCPenney using a credit card. When she didn’t make her payments, the creditor started collection actions (on an unpaid balance of $731). A judgment was entered against the plaintiff, but she didn’t pay, appeal or file bankruptcy. The creditor, through its law firm, sent a Citation to Discover Assets to the plaintiff’s bank where she had a checking account with a balance that exceeded the judgment amount. The law firm instructed the bank not to turn over the plaintiff’s exempt assets.
When a person is tumbling into financial trouble, a common planning technique is to try to maximize the amount of property that can be held exempt from creditors if bankruptcy is filed. The U.S. legal system has a long history of allowing debtors to hold specified items of property exempt from creditors (unless the exemption is waived). This, in effect, gives debtors a “head start” in becoming reestablished after suffering economic reverses. Typically, one of the largest and most important exemptions is for the homestead.
Many taxpayers overpay their tax obligation and have a right to a refund of those overpayments when they file their tax return. Another option in such a situation is to have the amount of the overpayment apply to future tax liability. What is the best strategy? Well, that depends - and bankruptcy filing may complicate matters. That’s what this case is all about.
A bankrupt debtor’s homestead is exempt property that is not subject to the claims of creditors. In Kansas, a homestead comprises 160 acres of agricultural land, or one acre in a town or city, or a manufactured or mobile home that is occupied as a residence. In this case, the debtors (a married couple) purchased their home in 1994. In 1996, they transferred the residence to a revocable trust in which the wife served as the trustee and both the husband and wife were named as beneficiaries.
The Federal District Court for the Northern District of Iowa has rendered its opinion in a critical Chapter 12 bankruptcy case involving the construction and application of 11 U.S.C. §1222(a)(2)(A) - the provision in the 2005 Bankruptcy Act that reduces "governmental claims" to non-priority claim status in the debtor's bankruptcy estate. The bankruptcy court had held that the income tax triggered by the debtor's pre-petition sale of slaughter hogs did not come within the scope of the provision, but the District Court reversed on that point.
Part of the 2005 overhaul of bankruptcy law involved a significant change in the tax rules applicable in a Chapter 12 bankruptcy. That’s the chapter of the bankruptcy code that provides for reorganization for farmers. The new law contains a provision that changes “governmental claims” arising from the “sale, transfer, exchange or other disposition of any farm asset used in the debtor’s farming operation” from a priority claim in the bankruptcy estate to a general unsecured claim, provided the debtor receives a discharge. 11 U.S.C.
In Iowa, debtors in a bankruptcy proceeding must claim exemptions from the bankruptcy estate under Iowa law because Iowa has opted out of the federal exemptions. In Iowa, a homestead is exempt from judicial sale in a bankruptcy proceeding. An Iowa homestead “must embrace the house used as a home by the owner, and, if the owner has two or more houses thus used, the owner may select which the owner will retain (Iowa Code §561.1).
The VeraSun Energy Corp. Bankruptcy filing last fall rocked the ethanol world. Now the matter has progressed to a point where debtors can file a proof of claim form with VeraSun Energy Corp. The deadline for filing a Proof of Claim form for rejected corn contracts is May 25 or 30 days after a corn contract has been rejected, whichever is later. The Proof of Claim form to use is Form No.
The Bankruptcy Court for the Northern District of Iowa has become the first court in the nation to rule on the meaning and scope of language contained in the 2005 Bankruptcy Act designed to provide tax relief to farmers that file Chapter 12 (reorganization) bankruptcy. Historically, taxes triggered upon sale of farm assets were a priority claim in the bankruptcy estate and had to be paid in full ahead of the claims of general unsecured creditors. The 2005 Act changed that by stating:
November 6, 2008
VeraSun Energy and its 24 subsidiaries filed Chapter 11 bankruptcy on October 31, 2008 in the United States Bankruptcy Court in Delaware. The bankruptcy filing raises numerous questions for farmers and grain elevators that have legal relationships with VeraSun.
VeraSun operates 17 ethanol plants eight states:
Parties Seeking Payment Have Apparently Dropped their Preference Claims for Corn Producers
VeraSun filed a motion to establish a procedure to assume or reject executory contracts on November 14, 2008. The deadline for corn suppliers to object to VeraSun’s motion is November 21, 2008. Accordingly, a group of approximately 100 farmers did file a motion on November 21 objecting to VeraSun’s motion and requesting the court to establish a time certain for VeraSun to move to either accept or reject executory corn contracts. A hearing on the matter has been set for December 2 in the United States Bankruptcy Court for the District of Delaware.