When a farm operator, or any other business person, is unable to continue to service all of his indebtedness he may face substantial pressure from creditors. This pressure eventually may take the form of legal action. One way a farmer can respond to the pressure of creditors is to seek the protection of the Bankruptcy Code.

A farmer may combine a variety of different exemptions during their bankruptcy proceedings to guard important pieces of property that can help to keep the farm run properly. For a worker such as a farmer, who depends on certain machines and the possession of growing crops, exemptions can prove crucial to keeping their livelihood. These exemptions can extend to a number of different types of property.

Exemptions available to farmers include:

• crops not grown or harvested yet;

• vehicle used as personal property;

• machine and tools used for farming;

• homestead exemption for the farm’s property;

• wildcard exemption for additional pieces of property.

A person filing for these exemptions needs to follow the correct process to see any benefit during their bankruptcy proceedings.

For purposes of the Bankruptcy Code, a farmer is defined as a person who, during the tax year immediately preceding the year in which the bankruptcy petition was filed, received more than 80 percent of his gross income from a farming operation. A farming operation is defined very broadly under the Bankruptcy Code and includes farming, tillage of the soil, dairy farming, ranching, production or raising of crops, poultry, or livestock. It is not necessary for the debtor to be involved in farming at the time he files a bankruptcy petition. It is only necessary that the income test, based on the preceding year’s income and established by the Bankruptcy Code, be met.

Family farmers are eligible for Chapter 12 protection. There are certain requirements that have to be met to be eligible to file a Chapter 12 bankruptcy. The purpose of these requirements is to prevent Chapter 12 from being used by people who are not actually farmers.

Family Farmers for Chapter 12 include an individual or an individual and spouse with more than fifty percent of their gross income derived from farming for the taxable year preceding the year of filing, debts not exceeding stipulated amount, and at least fifty percent of their liquidated debt is from the farming operation owned by the debtor. Additionally, family farmers include a corporation or partnership in which more than 50 percent of the outstanding stock or equity is held by one family and their relatives, the family or relatives conduct the farming operation, and more than 80 percent of the value of its assets consists of assets related to the farming operation.