Three new bankruptcy laws that are designed to assist family farmers, military veterans, reservists and National Guard members received broad bipartisan support and have been enacted recently.
These amendments to the Bankruptcy Code are designed to provide greater access to the bankruptcy courts, streamline the bankruptcy process, and honor farmers and members of the military in a meaningful way, notes Denise D. Dell-Powell, chair of Dean Mead’s Bankruptcy and Creditors’ Rights Practice Group. The goal of the legislation, Dell-Powell observes, is to make the relevant chapters of the Bankruptcy Code more viable, affordable and realistic solutions for the targeted debtors in financial distress.
The Family Farmer Relief Act (FFRA) of 2019
Increases in production expenses and farm debt have risen substantially in recent years. For many family farmers, particularly in the Midwest and Southeast, the need to take on more debt to remain competitive has eliminated Chapter 12 as a viable solution to insolvency. Prior to the passage of the FFRA, the debt cap for Chapter 12 – the form of bankruptcy designated for farmers – was only $3,237,000. Many family farmers owe significantly more than this. This meant that those farmers in financial distress were compelled either to try and reorganize under Chapter 11, which is a far more expensive and complicated process, or to simply liquidate and lose their farms. The FFRA raises the debt cap for Chapter 12 to the far more realistic amount of $10,000,000, helping to ensure that farmers are not unnecessarily burdened by the cost of having to reorganize under Chapter 11.
The Honoring American Veterans in Extreme Need (HAVEN) Act of 2019
The HAVEN Act exempts veterans benefits paid by the Department of Veterans Affairs and the Department of Defense from the calculation of monthly income under the bankruptcy code. Prior to the passage of the HAVEN Act, an individual receiving veterans’ disability benefits was required to include this income in the calculation that is used in part to determine eligibility to file under Chapter 7. The result was that many disabled veterans facing financial hardship after their return from service were not able to discharge their debts under Chapter 7.
By contrast, ordinary Social Security disability benefits are not considered income under Chapter 7, which created an inequity in the way the bankruptcy code treated similar benefits. Given that 25% of all veterans collect disability benefits, this was a significant issue that deemed many veterans in financial distress ineligible to file a Chapter 7 bankruptcy and discharge their unsecured debts without repayment to creditors. The alternative to Chapter 7 is Chapter 13, which requires the repayment of some portion of unsecured debt over a period of years. Excluding veterans’ disability benefits from income calculations will allow more veterans to file Chapter 7 bankruptcy rather than having to repay their creditors in Chapter 13, enabling them to use their disability benefits for their own needs rather than as a source of income to pay back creditors.
The National Guard and Reservists Debt Relief Extension Act of 2019
This law extends for four years – through December 18, 2023 – the exemption from certain bankruptcy means testing for members of the National Guard and reserves for the Armed Forces. This applies to those members who are called to active duty or homeland defense for 90 days or more. Similar to the HAVEN Act, this exemption will expand eligibility for military personnel to file under Chapter 7 instead of Chapter 13.
What the New Laws Mean
For farmers, veterans, National Guard members and reservists experiencing financial difficulties, these amendments to the Bankruptcy Code should bring a measure of immediate relief, observes Dell-Powell. The laws account for the economic realities and inequities faced by each of these groups and offer updates that recognize their contributions and sacrifices.
It is unfortunate, notes Dell-Powell, that military personnel in particular are so disproportionately represented in the number of bankruptcy cases by volume that are filed each year, with 2017 Census Bureau statistics showing close to 30% of filers from this important community. While these new amendments are somewhat narrow in scope, they do directly target the specific public policy concerns that needed redress. The fact that these amendments received such broad bipartisan support shows a clear indication that Congress shared this sentiment.