ABA Opposes Debt Limit Change for Chapter 12 Bankruptcies

A proposed change to Chapter 12 of the Bankruptcy Code could have adverse effects for the nation’s agricultural producers, the American Bankers Association said in a statement for the record in a House Judiciary Subcommittee hearing held today. ABA submitted the testimony as lawmakers consider H.R. 2336, which would raise the current debt limit for Chapter 12 filings from approximately $4.3 million to $10 million.

Designed to help famers keep their farms but reorganize their debts to avoid foreclosure or liquidation, Chapter 12 bankruptcy includes expansive rights for debtors that do not exist in other chapters of the bankruptcy code, ABA pointed out, adding that raising the Chapter 12 debt limit could increase the cost of borrowing for farmers and ranchers and reduce the overall availability of credit.

ABA pointed out that the current debt limits under Chapter 12 are already indexed to inflation and are adjusted accordingly every three years. Rather than make a significant one-time increase as the bill proposes, ABA suggested that the three-year adjustment could be made annually.