Additional Relief on the Way for Chapter 12 Farm Debtors

Chapter 12 is a type of bankruptcy meant to help farmers with some of the unique financial problems they encounter.  One of those issues is the tax liability that arises when land is sold – land that may have been in the same family for many years.  In 2011, the U.S. Supreme Court ruled that profits from the sale of farm assets during a Chapter 12 bankruptcy are taxable to the individual debtor, not the bankruptcy estate.  The result of this ruling is that farmers who sell property as part of a Chapter 12 case may have a tax debt which survives the bankruptcy instead of an unsecured debt which is resolved by the bankruptcy.  In September 2012, two U.S. Senators sought to change that result.  The Family Farmer Bankruptcy Tax Clarification Act of 2012 seeks to amend the bankruptcy law to reflect legislative intent: to make dischargeable all unsecured tax liability arising from post-petition sales or transfers of farm assets in Chapter 12 cases.  A more detailed description of the proposed legislation can be found here:

The Family Farmer Bankruptcy Tax Clarification Act of 2012.

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