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Chapter 12 Bankruptcy

Overview to Chapter 12

Chapter 12 Bankruptcy

Learn About the History of Chapter 12

Learn About the History of Chapter 12

Concerning the first Federal statutes in the United States on the subject of
bankruptcy, questions specific to benefits for farmers and fishermen were
left unanswered, as these professions were barely even addressed by the bankruptcy
laws. The Bankruptcy Act of 1898 is generally recognized as the first major
comprehensive piece of bankruptcy legislation in America, and was a critical
creation on Congress’s part because it authorized the creation of the U.S. Bankruptcy
Courts
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While its name does not explicitly cite the
topic of bankruptcy, questions of whether or not many farms would go
under as a result of the Great Depression were firmly responded to in the
negative by the Farm Credit Act of 1933. The Act, signed into law by President
Franklin D. Roosevelt, offered several forms of relief for farmers in jeopardy
of losing the rights to their land, including the extension of emergency loans,
temporary low interest rates, and options for mortgage refinancing
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However, as was often the case prior to the
20th and 21st centuries, bankruptcy laws were often short-lived or
required renewal to prevent their expir
ation. The Farm Credit Act, the Frazier-Lemke Act and
other legislation of the Depression Era were intentionally passed as
impermanent interventions on the part of farmers, fishermen and the like. Thus,
continuing with the theme of bankruptcy questions, over the decades and until
fairly recently, the biggest uncertainty was that of how long safeguards for
farmers would last.   

Look Into The Creation into Law

Look Into The Creation into Law

Often, the addition of laws to the register in United States law are a direct response to some current event, usually a crisis of some sort. With respect to the bankruptcy codes – that is, individual segments of the entire U.S. Bankruptcy Code – quite a few of these are reflections of the context in which they were enacted.
Prior to the creation of Chapter 12 as a separate bankruptcy code, farmers would have had to fight for recognition under the amendments of the time. It was not until the passage of the Bankruptcy Judges, United States Trustees and Family Farmer Protection Act of 1986 that Chapter 12 earned its proverbial spot on the mantelpiece and joined the other bankruptcy codes. This round of changes to the Bankruptcy Code were related to a state of panic in the farming market in the 1980s. The reasons for the collapse were several, but among the major contributors were dives in the value of agrarian commodities, disposable income and land itself. 
 
As was the perhaps unfortunate tradition behind bankruptcy codes surrounding farmers in United States economic history, this monumental addition to Federal bankruptcy law was signed into being with an expiration date, meaning it would have to be repeatedly renewed to continue to have an impact. Come 2005, though, the Bankruptcy Abuse Prevention and Consumer Protection Act was passed making Chapter 12 a permanent part of the Code.

Frazier Lemke Act

Frazier Lemke Act

In attempts to modify the United States Bankruptcy Code over the course of American history, the Frazier-Lemke Farm Bankruptcy Act is a lesson in stick-to-it-iveness. While the Act is often cited as an important step for the recognition of the struggles of farmers in the United States, it tends to be forgotten by some that this amendment to the Federal Bankruptcy Code was invalidated in its first form.
Of course, its legacy is that of positive impact to the United States Bankruptcy Code and the urgency of the Great Depression which prompted its speedy reintroduction to the floor of Congress. Still, this should not diminish its achievements and place in the history of Chapter 12.         
The Frazier-Lemke Act is so named for its two major co-sponsors, Senator Lynn Frazier and Representative William Lemke, both from the State of North Dakota. Signed into law in 1934, the Act tackled the problem of repossession of farms by banks head on, creating debt adjustment strategies that used post-petition property values as a basis for assigning monies to be repaid to lenders, and thus, acting as a precursor to similar provisions in amendments to United States Bankruptcy Code circa the 1970s, 80s and 90s.
Like aspects of the current Federal Bankruptcy Code, the Frazier-Lemke Act spelled out circumstances by which farmers could earn up to five years of a stay of collection actions from creditors, also known as a “moratorium.”
As noted, though, the initial Frazier-Lemke Act would not last. The Act was called into question in the case of Louisville Joint Stock Land Bank v. Radford. Ultimately, the court ruled the Frazier-Lemke Farm Bankruptcy Act was unconstitutional, as it violated creditors’ Fifth Amendment rights to entitled properties (unless due process of law warranted their removal).
Soon enough, though the Federal Bankruptcy Code would be updated once more via the reformed Frazier-Lemke Farm Mortgage Moratorium Act, which lowered moratoriums to three years and gave creditors more rights to sell debtors’ lands. Once again, though, the issue of the law’s existence would be called into question in front of the Supreme Court. 
In a finding that would have a lasting effect on the future viability of Chapter 12 of the United States Bankruptcy Code, the Court ruled in 1937’s Wright v. Vinton Branch of Mountain Trust Bank of Roanoke that the new Frazier-Lemke Act was not unconstitutional, stating that during stays on collection/foreclosure, mortgages are the property of the debtor, not the creditor.

Rehabilitation or Organizations for Farmers and Fishers

Rehabilitation or Organizations for Farmers and Fishers

Chapter 12 rehabilitation for family farmers and fishermen is indeed a fairly small portion of United States bankruptcy law, but just the same, it has merit and use even today with over 400 total requests for relief under Chapter 12 a year in this country (which is more than Chapter 9 filings.
Though it may appear to some who are living amidst more industry-minded urban sectors that Chapter 12 is a product of days much gone by, perhaps surprisingly, its permanent addition to the Bankruptcy Code is quite necessary. As with Chapter 11 and Chapter 13 reorganization plans, the goal of Chapter 12 rehabilitation is not wholesale liquidation of assets, but a solution to insolvency that allows debtors to maintain their livelihood while they try to meet the bulk of their financial obligations.
While there certainly may be opportunities for negotiation of existing debts or their discharge outright under Chapter 12, pre-petition debts will not be completely negligible. In fact, part of family farmers and fishermen’s eligibility is a numerical measure of their insolvency. Fishers may not owe more than $1,642,500 to lenders, and farmers may not possess more than $3,544,525 in debts.


Purpose
Given Chapter 12’s fairly recent existence, it might not seem that there is much to consider with regard to its history. To at least a certain extent laws have been on the books since the 19th century that have given weight to farmers’ fight to remain solvent. The Bankruptcy Act of 1898, the first major piece of legislation in the history of American bankruptcy law to address the subject on a national level, mentioned relief for farmers, but only for incomes under a certain dollar amount and only for involuntary filings on the part of creditors. 
The economic struggles across the United States during the Great Depression, however, were a catalyst for a reprise of agricultural reform. Laws like the Frazier-Lemke Farm Bankruptcy Act and the Farm Credit Act of 1933 that went into effect during this time were specifically devoted to the needs of farmers.
The Farm Credit Act of 1933 was signed into law by President Franklin Roosevelt and designed as a form of emergency response, authorizing the issuance of loans, refinancing options, and low interest rates to farm owners. Unfortunately for farmers, though, these were intended to be temporary measures, and thus, required renewal to continue to make an impact.

Creation into Law
As earlier laws on relief for family farmers and fishermen were means of counteracting the dire economic circumstances of the times and of the people that suffered through these periods of hardship, Chapter 12 bankruptcy as we know it today was a response to a new time of crisis for these laborers, notably farmers. Following the Bankruptcy Reform Act of 1978, the professions of filers ceased to be recorded as part of census reports.
However, in the wake of the passage of the Bankruptcy Judges, United States Trustees and and Family Farmer Protection Act of 1986, Chapter 12 came into being. Its creation was motivated by a number of factors, including reduced marketability of agrarian products and plummeting land values.
Expectedly, the changes of the Bankruptcy Judges, United States Trustees and Family Farmer Protection Act of 1986, like their predecessors, were  not permanent and required extension to be of continued worth to family farmers. Moreover, benefits to family fishermen were still lacking in terms of the Bankruptcy Code.
With the advent of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), however, Chapter 12 officially recognized the needs of fishers for debt reorganization/assistance. Most critically, the BAPCPA turned Chapter 12 from a mere crisis intervention measure to a permanent institution and short-term option for relief from credit collections.


Frazier-Lemke Act

The original Frazier-Lemke Act, named for North Dakotan lawmakers Lynn Frazier and William Lemke, limited the ability of banks to repossess farmlands from private owners on the basis of debt incurred during the Depression and re-envisioned how debts in repayment plans should be calculated, making them concordant with their current (at the time) value. In addition, the Frazier-Lemke Act afforded debtors a five-year “moratorium” on the ability of creditors to collect on their investments in farms.
Ultimately, though, the Supreme Court found the Frazier-Lemke Act to be a unconstitutional violation of the Fifth Amendment, unlawfully keeping lenders from their due “property,” which banking standards would seem to confirm. After all, such were the consequences of defaulting on a loan.
Just the same, the circumstances surrounding the Great Depression begged clemency on the behalf of farmer-debtors. Consequently, the Frazier-Lemke Act was reformed as the Frazier-Lemke Farm Mortgage Moratorium Act in ways that were more constitutionally viable and fair to creditors.
The Supreme Court, in its majority decision in 1937’s Wright v. Vinton Branch of Mountain Trust Bank of Roanoke, confirmed the legitimacy of the Act, and likewise confirmed it would be influential in the creation of Chapter 12 down the road, serving as historical precedence.