Debtor is an Iowa limited liability company (LLC) formed in 2018. The company’s main assets were real estate near Thornton, Iowa, and used farm equipment the company’s owner fixed and resold. In December 2022, debtor filed for Chapter 12 bankruptcy, listing a total debt of $261,190 and $83,000 in farm assets from a cattle operation. A creditor who had issued debtor a loan challenged the Chapter 12 filing by arguing the debtor did not qualify for family farm bankruptcy, and asked the court to convert the case to a Chapter 7 bankruptcy action.

The court granted the creditor’s motion to convert the case to Chapter 7. Specifically, the court found that debtor committed fraud in filing a Chapter 12 case by “overwhelming evidence in the record.” In support of its finding, the court noted that in 2019 and 2021, the LLC filed its required biannual report with the Secretary of State and stated that it was not a family farm LLC, nor did it hold an interest in agricultural land. The manager of the LLC also applied for a business loan disclosing the farm machinery resale business only, and recertified the parcel was not agricultural land in a Consent Decree of Foreclosure with the loan creditor. The court also found that the cattle operation was owned by a different LLC with the same owner as the debtor LLC, and any testimony that the debtor company owned the cattle under an unwritten lease agreement between the two companies was not credible. Finally, the court found the cattle had been sold to a third party prior to the filing of the bankruptcy petition.

Ultimately, the court found the debtor company was not a “farming operation” and therefore did not qualify for Chapter 12. The court further found that even if cattle were owned by the debtor company, the value of the cattle did not meet the Chapter 12 requirements that 80% of the company’s assets relate to the farming operation or that 50% of the debt arises from the farming operation.

In re DLB II, L.L.C., No. 22-00834 (Bankr. N.D. Iowa Sept. 8, 2023).