Mr. President, I rise today to introduce, along with Senator Franken, the Family Farmer Bankruptcy Clarification Act of 2015. I thank Senator Franken for his work on this bill and for his support. We…
Mr. President, I rise today to introduce, along with Senator Franken, the Family Farmer Bankruptcy Clarification Act of 2015. I thank Senator Franken for his work on this bill and for his support. We introduced identical legislation in the 113th Congress and similar legislation in the 112 Congress. Unfortunately, the Senate has never had the opportunity to consider these bills and the problem we seek to correct.
This bipartisan bill addresses the 2012 United States Supreme Court case Hall v. United States. In a 5-4 decision, the Supreme Court ruled that a provision I inserted into the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act didn't accomplish what we in Congress intended. The Family Farmer Bankruptcy Clarification Act of 2015 corrects this and clarifies that bankrupt family farmers reorganizing their debts are able to treat capital gains taxes owed to a governmental unit, arising from the sale of farm assets during a bankruptcy, as general unsecured claims. This bill will remove the Internal Revenue Service's veto power over a bankruptcy reorganization plan's confirmation, giving the family farmer a chance to reorganize successfully.
In 1986 Congress enacted Chapter 12 of the Bankruptcy Code to provide a specialized bankruptcy process for family farmers. In 2005 Chapter 12 was made permanent. Between 1986 and 2005 we learned what aspects worked and didn't work for family farmers reorganizing in bankruptcy. One problematic area was where a family farmer needed to sell assets in order to generate cash for the reorganization. Specifically, a family farmer would have to sell portions of the farm to generate cash to fund a reorganization plan so that the creditors could receive payment. Unfortunately, in situations like this, the family farmer is selling land that has been owned for a very long time, with a very low cost basis. Thus, when the land is sold, the family farmer is hit with a substantial capital gains tax, which is owed to the Internal Revenue Service.
Under the Bankruptcy Code, taxes owed to the Internal Revenue Service receive priority treatment. Holders of priority claims must receive payment in full, unless the claim holder agrees to be treated differently. This creates problems for the family farmer who needs the cash to pay creditors to reorganize. However, since the Internal Revenue Service has the ability to require full payment, they hold veto power over a plan's confirmation, which means in many instances the plan will not be confirmed. This does not make sense if the goal is to give the family farmer a fresh start. Thus, in 2005 Congress said that in these limited situations, the taxes owed to the Internal Revenue Service would be
stripped of their priority and treated as general unsecured debt. This removed the government's veto power over plan confirmation and paved the way for family farmers to reorganize.
Unfortunately, in Hall v. United States, the Supreme Court ruled that despite Congress's express goal of helping family farmers, the language inserted into the Bankruptcy Code in 2005 conflicted with the Tax Code. The Hall case was one of statutory interpretation. There is no question what Congress was trying to do; rather, did Congress use the correct language? My goal, along with others at the time, was to relieve family farmers from having their reorganization plans fail because of huge tax liabilities to the Federal Government. Justice Breyer noted this in the dissent: ``Congress was concerned about the effect on the farmer of collecting capital gains tax debts that arose during (and were connected with) the Chapter 12 proceedings themselves. . . . The majority does not deny the importance of Congress' objective. Rather, it feels compelled to hold that Congress put the Amendment in the wrong place.'' Hall v. United States, 132 S.Ct. 1882, 1897, 2012.
As a result of the Hall case, family farmers facing bankruptcy now find themselves caught in a tough spot. The rules have now been changed and must be corrected in order to provide certainty and clarity in the law. The Family Farmer Bankruptcy Clarification Act of 2015 will provide the clarity needed to help family farmers.
This bill adds a new section 1232 to title 11 of the United States Code. This new section, along with other conforming changes to the Bankruptcy Code, gives guidance and certainty to debtors, practitioners, and courts as to how these claims are to be treated during bankruptcy. I am pleased that the bill we are introducing today will help family farmers who are facing hard times. The Family Farmer Bankruptcy Clarification Act of 2015 ensures that what Congress sought to do in 2005 actually occurs. In the wake of the Hall decision, this bill is needed in order to help family farmers reorganize successfully.
Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.
