Maroney: Class-Action Chapter 12 bankruptcy as a farm solution |

By Editor on June 2, 2010

Editor’s note: This oped is by James Maroney of Leicester. He is a former organic dairy farmer.

The dairy business in the spring of 2010 is heading for an ugly climax. In previous times, when milk prices were merely low, conventional farmers would hunker down to wait until prices improved. But when prices are $5 to $8 per hundred weight below cost, as they are now, even “efficient” farmers face the prospect of bankruptcy.

Any concern that finds itself cash flow negative will sooner or later be forced out of business. Secured creditors can force a defaulting business into Chapter 7 bankruptcy and auction its assets for their own accounts. The owner gets what is left, which is invariably nothing. Forced bankruptcy carries hard connotations of failure and shame, feelings that proud farmers—perhaps more than any other group—will want to avoid.

But there is an important difference between forced liquidation under Chapter 7 and voluntary reorganization under Chapter 12. Voluntary filing for Federal Bankruptcy Protection is a smart, pro-active tactic available to any farmer who needs time to adjust to market forces beyond his or her control. Under Chapter 12, a federal statute written especially for farmers, the farmer stays in business as a “debtor in possession,” dedicating cash flow not to debt service but to a new business plan.