By David R. Langston, Partner,
Mullin, Hoard & Brown, LLP, Lubbock, TX
President Trump signed into law several bankruptcy reforms on August 23,
2019. These bills are called: the Family Farmer Relief Act, the Honoring
American Veterans in Extreme Need Act (HAVEN), and the Small Business
Reorganization Act (SBRA).
Family Farmer Relief Act: This act very simply amends the definition of
“family farmer” to increase the current debt limitations from $4.4 million
to $10 million. As a result, many farmers who were not eligible for relief
under Chapter 12 before now are.
Congress recognized that low prices and bad weather have caused many
farmers economic stress. This amendment provides needed assistance to
farmers restructuring their finances or dealing with tax liabilities.
It is important for farmers to get advice before making decisions about
2020 – particularly if you have carried over 2019 crops and need to
liquidate assets to service debt. If approached properly income taxes can
be discharged for qualifying family farmers.
This financial planning must occur prior to paying off operating loans.
Otherwise, the options available become more limited.
A structured reorganization plan under these new provisions of the
Bankruptcy Code will allow many family farmers the opportunity to continue
farming. Qualifying farmers with up to $10,000,000 in debt can have their
debts restructured — giving them needed breathing room to keep and
maintain their family farms – and also allow them to avoid full payment of
income taxes resulting from sales of farm assets.
Eligibility depends upon your personal financial situation. To find out if
you are eligible for this relief you should contact your local attorney or
tax consultant.
Small Business Reorganization Act: The SBRA does two things. First, it
adds a subchapter to Chapter 11 to provide a new option for reorganization
of a “small business debtor.” Second, it makes an adjustment to preference
laws and the venue statute which governs such cases in bankruptcy courts.
SBRA will allow small businesses with up to $2.7 million in debt a
simplified process to receive bankruptcy protection, allowing negotiation
with creditors while staying in operation.
These provisions may afford timely relief to small agribusinesses in
economic distress due to tariffs.
The consensus has been that Chapter 11 is not well-suited for individuals
or small businesses. It is too expensive and complicated. The new SBRA is
designed to remove the obstacles and stream-line the process for
qualifying individuals and businesses. It prevents the largest creditors
from dominating and controlling the case.
SBRA allows the individual or business to retain management of the assets
while the case is administered. It also calls for the appointment of a
Small Business Trustee to facilitate the development of a viable
restructuring plan and to resolve disputes without the necessity of court
hearings that take time and cost money.
Once again getting timely professional advice from your attorney and
accountant is critical for success.
Honoring American Veterans in Extreme Need Act: The HAVEN Act amends the
definition of “current monthly income” to exclude certain veteran
disability and death benefits. This change makes our returning veterans
who have carried the burden of foreign wars eligible for bankruptcy relief
even if they are receiving monthly payments for their service. Congress
believed the old law was unfair and has now made these changes to the law
to allow veterans to restructure their finances under the Bankruptcy Code.
Contrary to the old adage about what you don’t know can’t hurt you – often
times what you don’t know can prevent you from helping yourself and your
family. You should seek information and advice on these new laws so you
are aware of the tools available to assist you and your family during
these difficult financial times. Congress passed these bankruptcy reforms,
on a bi-partisan basis, to help our veterans as well as family farmers and
small businesses who are on the front lines of America’s international
disputes.
The author of this article, David R. Langston, is a Partner at Mullin,
Hoard & Brown, LLP, in Lubbock, Texas.
