12-4-95

Contacts:
Scott Hippen, (515) 232-2687
Neil E. Harl, Economics, (515) 294-2210
Steve Jones, News Service, (515) 294-4778

(Iowa State University;12-4-95;1400)

CHAPTER 12 REORGANIZATION: SURVIVAL OF THE FARMER

AMES, Iowa -- A bankruptcy program developed in the 1980s to aid 
farmers during the farm debt crisis appears to have helped keep 
many of them in business. 

According to a study from Iowa State University, more than 80 
percent of the farmers in Iowa who filed for bankruptcy in 1986-87 
under the newly established Chapter 12 of the Federal Bankruptcy 
Code were still connected to farming seven years later.

Scott Hippen, an Ames attorney and former ISU graduate student, 
and economics professor Neil E. Harl surveyed 81 Iowa farmers who 
had filed for bankruptcy under Chapter 12 shortly after the 
legislation was passed in 1986. They found that 61 Chapter 12 
filers continued to farm, 10 no longer farmed but still owned land 
and two had passed the farm on to a family member. 

Harl said the "survival rate" was much higher than expected. "When 
the Chapter 12 legislation was created, I can recall many informed 
individuals who believed that, at most, 10 percent of the filers 
would survive in farming," said Harl, who also is an attorney. "I 
was viewed as an optimist when I maintained that 30 to 50 percent 
of the filers would survive."

The 1994 research is the first to study the impact of Chapter 12 
on the farm community, according to Hippen and Harl. 

The researchers do not attribute this high survival rate entirely 
to the implementation of Chapter 12. They said Chapter 12 played a 
role, but market circumstances and other government programs also 
affected the farmers' success. 

"Land values in Iowa were plummeting in the 1980s, and they 
bottomed out in 1986 at the same time that Chapter 12 was 
implemented," Hippen explained. "Perhaps this is a coincidence, 
but the farm reorganizations that occurred under Chapter 12 
probably kept land from being put up for sale. A decrease in the 
supply of land for sale is one factor that would help a market to 
stabilize."

The study found that the amount of land owned by farmers declined 
substantially after filing for Chapter 12. In 1986, Chapter 12 
filers owned an average of 333 acres; in 1994, they owned 257 
acres Q a 23 percent decrease. Those filers who were able to 
successfully complete Chapter 12 suffered only a 16 percent 
decrease in the number of acres owned. However, those who filed 
for Chapter 12 and did not successfully complete the plan suffered 
a 50 percent decrease in the number of acres owned.  

The amount of land that Chapter 12 filers had rented for farming 
remained fairly constant after filing, about 190 acres per farm 
operation.

Hippen and Harl also found that:
-- the ratio of debt to assets among the filers had been reduced 
from $2.73 of debt per dollar of assets at time of filing to 56 
cents of debt per dollar of assets in 1994.
-- the equity in the average farm operation had gone from a 
negative net worth at filing to $219,000 in 1994.
-- the Chapter 12 procedures resulted in an average debt write-off 
of $155,000 by the filers' creditors (39 percent of the total 
debt).
-- the stress and stigma of bankruptcy did not appear to have a 
large effect on family relationships: 43 percent reported no 
impact, while 20 percent reported a strengthening of family 
relationships; 31 percent reported that family relationships had 
been strained.

Detailed copies of the research results are available. "The 
Experience of Chapter 12 Bankruptcy Filers in Iowa," by Scott L. 
Hippen and Neil E. Harl, may be purchased for $5 from the Center 
for International Agricultural Finance, 478 Heady Hall, Iowa State 
University, Ames, Iowa, 50011-1070. The phone number is (515) 294-
2210.