In a Chapter 12 bankruptcy, the Bankruptcy Court protected the ability of a farmer to receive crop subsidies from the U.S. Department of Agriculture (“USDA”) even if the farmer’s loan is in default. Outside of bankruptcy, the USDA had the right to set-off the payment. In bankruptcy, the farmer may receive some much-needed liquidity.
In a recent case, a farmer received a loan from the USDA ten years before filing for bankruptcy. The farmer missed two payments after the bankruptcy but was entitled to receive crop subsidies from the USDA post-petition as part of the Price Loss Coverage Program and the Market Facilitation Program. The USDA filed a motion for relief from stay to enforce its setoff rights. Even though the payment default occurred post-bankruptcy filing on a pre-bankruptcy loan, the Court found that set-off was not permitted and denied stay relief under four different tests interpreting 11 U.S.C. §553.
The Court’s determination of when the debt arose has impacts beyond a Chapter 12 and beyond debts between the federal government and farmers. As uncertainty grows and the potential for more government aid programs arise, the Court’s guidance provides a valuable tool to protect payments to an on-going business or agri-business operation.
If liquidity in your business has created issues or your business faces potential set-off issues, the Bankruptcy Attorneys at Mesch Clark Rothschild can advise you of the potential benefits of bankruptcy to protect liquidity and maintain your on-going operations.
