Sens. Franken and Grassley Push Bill to Reverse Supreme Court Ruling on Farm Family Bankruptcies

Press Release

U.S. Sens. Al Franken (D-Minn.) and Charles Grassley (R-Iowa) have introduced legislation that would reverse the Supreme Court ruling on Hall v. United States which is making it harder for farm families to reorganize their finances when they fall on hard times.

In 2005, Congress passed Chapter 12 of the bankruptcy code that allows farmers going through bankruptcy proceedings to first use profits from the sale of farm assets to pay off creditors like the local feed store or the local bank and then pay their taxes on the asset profits to the IRS.

In May of 2012, the Supreme Court's ruling reversed Chapter 12 and farmers were again required to pay taxes on the sale of assets to the IRS up front. This frequently left farmers without enough money to pay other creditors, and despite attempts to reorganize their debt, farmers ended up having to sell off the rest of the land, losing their farms.

Sens. Franken and Grassley's Family Farmer Bankruptcy Tax Clarification Act of 2013 would remedy the Supreme Court's 2012 ruling and reinstate Chapter 12 to recognize the unique situation that farmers face when reorganizing through bankruptcy proceeding.

"Our bill is a commonsense fix to ensure that the law is carried out as it was intended so farmers going through bankruptcy can keep their land and repay the debts they owe in their communities," said Sen. Franken.

"Chapter 12 helps the farmer and the banker sit down and work out alternatives for debt repayment so a farmer can keep his land," said Sen. Grassley. "There's no question what our intent was when we wrote the 2005 law. We simply need to ensure the plain language of the law says and does what we intended."

Sen. Franken and Grassley's bill clarifies that bankrupt family farmers reorganizing their debts are able to treat capital gains taxes arising from the sale of farm assets during a bankruptcy as general unsecured claims. It removes the Internal Revenue Service's veto power over a bankruptcy reorganization plan's confirmation, giving the family farmer a chance to reorganize successfully.

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