Congress Extends Farmer Bankruptcy Protections; Overall Reform Prospects Look Dim

By Sarah Borchersen-Keto, CCH Washington Staff Writer

For nearly seven years, Congress has been grappling with the issue of comprehensive bankruptcy reform. Each year, a consensus is nearly reached, only to be complicated by some sticking point, often political in nature. Meanwhile, a little known section of the Bankruptcy Code--Chapter 12, specifically for farmers--is continually held hostage by these reform efforts because of the provision's expiration date.

Lawmakers, for quite some time, have agreed to make Chapter 12 permanent as part of larger bankruptcy reform. But currently, it is a temporary provision, as overall reform has been elusive so far. So Congress continues to pass temporary extensions to fill the void and encourage further reform.

To this end, the Senate approved the Family Farmer Bankruptcy Relief Act of 2003 by voice vote on July 31, 2003. The bill extends Chapter 12's special bankruptcy protection provisions, which had expired on July 1, until January 1, 2004. The House of Representatives had passed the measure on June 23 prior to its adjournment for summer recess, and it now awaits President George W. Bush's signature. President Bush previously had signed a six-month extension on December 19, 2002, and it was the fifth temporary extension of this provision, first enacted in 1986.

Under Chapter 12, family farmers can obtain a court order protecting them from their creditors as long as they meet certain eligibility requirements. They include a debt ceiling of $1.5 million, while at least 80 percent of all debts must be farm-related.

According to Rep. James Sensenbrenner (R-Wis.), chairman of the House Judiciary Committee and the bill's sponsor, recent statistics demonstrate that the need for Chapter 12 protection is rising. Statistics from the Administrative Office of the United States Courts show that Chapter 12 filings jumped by more than 62 percent over the past year. About 800 to 1,100 farmers file for Chapter 12 bankruptcy protection each year, according to the American Bankruptcy Institute.

Without the option of filing for Chapter 12, family farmers would be forced to file for relief under the Bankruptcy Code's other alternatives, Sensenbrenner said, none of which would work as well for them as Chapter 12.

He noted that extending Chapter 12 for an additional 6 months maintains the status quo while Congress can complete its consideration of comprehensive bankruptcy reform.

In March, the House of Representatives passed a comprehensive reform measure that mirrors bankruptcy legislation from 2002, the Bankruptcy Abuse Prevention and Consumer Prevention Bill (HR 333). But the House bill does not contain a controversial protestor provision, which lead to its defeat last year when a congressional conference committee could not agree on compromise language.

The measure, however, faces an uncertain future in the Senate, where Sen. Charles E. Schumer (D-N.Y.) is expected to offer the controversial provision, which prevents protestors from using bankruptcy laws to discharge any monetary court judgments levied on them as a result of their actions against a lawful commercial activity.

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