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Abstract

Chapter 12, a special section in the bankruptcy code enacted in 1986 in response to the farm financial crisis, will expire on October 1, 1998. It has succeeded in keeping some farmers in business and has encouraged informal lender-farmer settlements out of court. But it has increased costs by encouraging both inefficient farmers who would otherwise liquidate and efficient farmers who would otherwise continue their operations at greater expense to reorganize their businesses and charge off part of their debts under the protection of bankruptcy. Some of these costs could be mitigated by allowing lenders the option of recapturing writedowns in secured debt as asset values increase.

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