Chapter 12 and farm bankruptcy in Minnesota

Karl Johnson is one of only three attorneys in Minnesota certified as a Business Bankruptcy Specialist by the American Board of Certification. He has appeared as attorney of record in thousands of bankruptcy cases under Chapters 7, 11, 12 and 13, including agricultural bankruptcies and contested creditor matters.

Karl’s teaching has included Chapter 12 and agricultural workouts for banking and legal audiences, including the Minnesota State Bar Association’s January 2025 program on Chapter 12. His work complements Matthew Bialick’s agricultural finance and farm litigation practice when a matter involves both a distressed operation and contested legal rights.

Chapter 12 is available to qualifying family farmers and family fishermen with regular annual income. A family farmer may be an individual, spouses filing together, or a qualifying corporation or partnership. Owning farmland or having agricultural customers does not, by itself, establish eligibility.

For family farmers, the total-debt ceiling is $12,562,250 as of September 21, 2026. The applicable requirements depend on the debtor’s structure.

For an individual or spouses engaged in farming, at least 50% of aggregate noncontingent, liquidated debts must arise from their farming operation. A principal-residence debt is excluded from that calculation unless it arises from farming. More than 50% of gross income must come from the operation in the preceding tax year, or in each of the second and third preceding tax years. These tests are in 11 U.S.C. § 101(18)(A).

Corporations and partnerships have separate tests under § 101(18)(B): majority family ownership and family operation, more than 80% farm-related asset value, the debt ceiling, and the farm-debt test with its dwelling exception. Corporate stock cannot be publicly traded. The individual gross-income test is not a universal test for entity debtors. Regular annual income must also be sufficient to support plan payments.

A Chapter 12 debtor generally remains in possession and can continue operating the farm, subject to the Bankruptcy Code and court oversight. Continued operations still require a workable budget, access to necessary inputs and an understanding of restrictions on cash collateral and financing. Filing a case does not itself provide operating money or permission to use a lender’s cash collateral.

For an operating farm, early questions often include when crops will be sold, how livestock and equipment will be maintained, which expenses cannot wait and whether proposed financing is available. Those practical questions belong in the restructuring analysis from the beginning.

A plan must address the claims against the farm and the treatment of collateral. For a secured claim, the available paths may include the creditor’s acceptance of the plan, lien retention with payments meeting the statutory requirements, or surrender of the collateral. Valuation, lien priority and the proposed payment terms can become contested issues.

Land, machinery, livestock, crops and grain-handling equipment may involve different documents and competing claims. We begin with the loan and security documents, ownership records, collateral values and any pending enforcement action rather than treating every asset as one pool.

A sale of farm assets can create a tax bill that affects the restructuring. Section 1232 gives special treatment to qualifying unsecured governmental claims arising from the sale or other disposition of property used in the debtor’s farming operation, including certain claims arising before filing or during the case before discharge. These claims are treated as nonpriority unsecured claims under the plan and are subject to the Chapter 12 discharge rules. The property, timing and tax claim must satisfy the statute; the provision does not eliminate every farm-related tax obligation.

Source: 11 U.S.C. § 1232.

Chapter 12 plans ordinarily run for three years and can extend to five years when the statutory requirements are met. Certain long-term secured payments may extend beyond the plan period. The court must find that the debtor can make the required payments and comply with the plan.

A farm’s projections should account for the timing of harvest receipts, input purchases, rent, taxes, family living expenses and other operating demands. Historical results, current commitments and supported assumptions help distinguish a workable proposal from one that depends on an unsupported recovery in prices or yields.

An entity’s bankruptcy and an owner’s personal obligations require separate analysis. A filing does not automatically eliminate a guarantor’s liability. The identity of each borrower and guarantor, the collateral securing each obligation and the scope of any bankruptcy protection must be reviewed together.

For agricultural lenders and other creditors, the work may include evaluating a proposed plan, documenting a secured claim, addressing collateral use or valuation, and participating in negotiations or contested proceedings. MJB represents parties on different sides of agricultural financial distress in separate matters, subject to conflict review.

An initial conversation is more useful with a clear picture of the operation and immediate deadlines. Have the following available:

• The borrower entities, owners, guarantors and principal creditors.
• Current loan balances, notes, security agreements, mortgages and guarantees.
• Recent tax returns, operating statements and cash-flow projections.
• A list of land, equipment, livestock, crops and other significant assets.
• Leases, production or marketing contracts, insurance information and proposed operating financing.
• Default notices, lawsuits, foreclosure or sale notices, and any approaching deadline.

We will arrange an appropriate way to exchange documents after reviewing conflicts. Do not send confidential records or detailed financial information through the initial website form.

Contact Karl Johnson at 612-961-0145 or karl@mjblawmn.com, or request an initial discussion. MJB Law is based in Minneapolis and handles Minnesota agricultural bankruptcy and related disputes.

Related practices: Agricultural litigation and bankruptcyBusiness bankruptcyAgricultural finance

This page provides general information, not advice about a particular operation or a promise of eligibility or results.

Page source links: U.S. Courts: Chapter 1211 U.S.C. § 101§ 1203: debtor in possession§ 363: cash collateral§ 1222: plan terms§ 1225: confirmation§ 524(e): other entities’ liability