Farmer Choice of Bankruptcy Chapter: A Look Beyond Chapter 12

Bridget Yeboah Bafowaa, Adam Rabinowitz, Will Secor and Paul Goeringer

No 360679, 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO from Agricultural and Applied Economics Association

Abstract: Bankruptcy is a tool for alleviating financial stress for borrowers, enabling individuals and businesses to reorganize or discharge their financial obligations and obtain a fresh start. Chapter 12 of the US bankruptcy code is specifically designed for financially distressed farmers to seek debt relief through the US court system. Yet a recent study shows approximately 56% of farm bankruptcies with FSA loan obligations are filed under chapters 7, 11, or 13. Unlike the consumer who is usually faced with two options, chapters 7 or 13, farmers are faced with even more options, making it a more difficult decision to determine how to move forward through financial recovery. A deeper understanding is needed to explore the factors that influence farm debtors' decisions when selecting among different bankruptcy chapters. The data used in this study identifies farm bankruptcies filed under chapters in addition to chapter 12, providing a comprehensive view of all available avenues for farmers seeking financial protection through the court. Using farm debtors’ financial standings and agricultural and macroeconomic factors at the time of filing, we explore what determines the choice between reorganization and liquidation, and the choice among the different reorganization chapters: chapters 11, 12, and 13. This analysis offers valuable insights into the conditions under which some farmers opt for alternative chapters, even though chapter 12 is supposed to be specifically designed to meet their needs. Findings from this study can help policymakers assess whether chapter 12 provides sufficient protection for farmers.

Keywords: Agricultural Finance; Farm Management (search for similar items in EconPapers)
Pages: 16
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea25:360679

DOI: 10.22004/ag.econ.360679

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