Summary of a Recent
Judicial
Development in
Bankruptcy
Post-Confirmation Conversion of Land to
Conservation Reserve Program Does not
Violate Chapter 12 Eligibility
Steve WhiteNational AgLaw Center Graduate Assistant
Summary of Decision
In In re Clark, 288 B.R. 237 (Bankr. D. Kan. 2003), the United States Bankruptcy Court found that a debtor's eligibility for Chapter 12 bankruptcy was not violated when the debtor proposed to enroll all land in the Conservation Reserve Program post-confirmation.
Background
Debtor Dennis Clark filed for Chapter 12 bankruptcy in 2001. In re Clark, 288 B.R. at 240. The initial plan for reorganization was filed that same year and was objected to by Kearny County Bank (Bank) on numerous grounds, including feasibility and valuation. See id. After a confirmation hearing, the court denied the plan on the basis that the lien retention requirement was not satisfied. See id. The debtor then filed an amended plan, which was amended twice and submitted to the court. See id. at 240-41. The amended plan (hereinafter referred to as the plan) consisted of two different scenarios. See id. at 241. One of the alternatives was for the debtor to continue his farming operation on all owned and leased land and to enroll one quarter of his land into the Conservation Reserve Program (CRP). See id. The second alternative was for the debtor to continue his farming operation until the end of the 2003 crop year, at which time he would enroll all land, owned and leased, into CRP and produce no crops. See id.
At the time of filing the plan, the debtor owned 317 acres, which was planted to wheat and pasture, leased 416 acres, planted to wheat and milo, and leased 322 acres of land enrolled in CRP. See id. at 242. For the leased CRP ground, the debtor only received the $5.00 maintenance fee on 160 acres and received twenty percent of the payment for the rest of the CRP ground. See id.
Arguments
The Bank argued that enrolling all of the land to CRP would cause the debtor to lose eligibility as a "family farmer" for Chapter 12 relief. See id. at 245.
Analysis and Holding
The court explained that the determination for "family farmer" status for Chapter 12 bankruptcy "is determined at the time the case is filed and is measured inter alia by a gross income requirement for the taxable year preceding the taxable year of filing." Id. at 246 (citations omitted). The court also explained that nowhere in the Bankruptcy Code is there a suggestion "that a debtor must continue to satisfy the test for a 'family farmer' throughout the pendency of the case . . . . [n]or does the Code suggest that a farmer's post-confirmation change in status divest[s] him of eligibility." Id. The court stated that it did not find any case law holding that Chapter 12 bankruptcy required the debtor to continue, or promise to continue, farming for the remainder of the plan. See id. at 246. See also id. at 246-48 (distinguishing present case from the cases presented by the Bank supporting their argument).
The court concluded that the enrollment of land to CRP after plan confirmation did not violate the debtor's eligibility for relief under Chapter 12. See id. at 247. With respect to the feasibility of the Plan's CRP alternative, the court stated that it was probably not feasible. See id. at 248. It listed a number of reasons for the lack of feasibility including whether future CRP programs would be available, eligibility of the debtor to enroll land in the program, and no set terms for CRP contracts. See id.
The case was decided on January 22, 2003; this summary was posted Sept. 14, 2004.