ABA Urges Restraint on Debt Limit Change for Chapter 12 Bankruptcies

In a comment letter sent today, ABA warned the House Judiciary Committee of the unintended consequences of raising the current debt limit for Chapter 12 bankruptcy filings from approximately $4.3 million to $10 million. The proposed debt limit changes are part of H.R. 2336, to be considered by the committee during a hearing scheduled for tomorrow.

Chapter 12 bankruptcy was designed to help farmers avoid foreclosure or liquidation of their farms by reorganizing their debts—and it includes expansive rights for debtors that do not exist in other chapters of the bankruptcy code. ABA pointed out that raising the Chapter 12 debt limit could increase the cost of borrowing for farmers and ranchers and reduce the overall availability of credit.

The association also noted 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.