Travails of Three Family Farms Highlight the Importance of Planning for Debt Relief—and the Future

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On Friday, May 22, a Wisconsin bankruptcy court allowed the Small Business Administration to deny paycheck protection plans to three family farms. Each farm filed for bankruptcy before the CARES Act became law. This is the law that provides farms and other businesses with relief from coronavirus, in part by enhancing benefits under the Paycheck Protection Program. They applied for the Paycheck Protection Program, but they were denied. The culprit is the Small Business Administration’s rule prohibiting debtors in bankruptcy from receiving PPP loans.

Bankruptcy courts do not agree on whether the SBA is allowed to do this. The bankruptcy code prohibits government units from denying a “license, permit, charter, franchise, or other similar grant” based on bankruptcy status. The Wisconsin bankruptcy court found that the PPP is a “loan,” not a grant. But a Texas bankruptcy court reached the opposite conclusion: PPP is really a “support product” that cannot be denied on the basis of bankruptcy status

So the rule is far from settled. But in an abundance of precaution, a Florida-based restaurant applied for the PPP, and then filed for bankruptcy. Other businesses may want to take note.

The SBA’s refusal to extend PPP to current debtors illustrates the importance of planning. Filing a bankruptcy proceeding too early can mean the loss of government benefits like the PPP. The earlier a deteriorating financial situation can be identified, the better. Timing under some circumstances can make or break the ability to get some tax relief, and protect valuable assets from creditors.

Regardless of whether a farm is experiencing financial distress or prosperity, planning is essential to passing on the small farm to the next generation of stewards. Family farms confront unique challenges in planning for the future. For example, some children may be more enthusiastic about agricultural stewardship more than others. Family farms also have unique opportunities. Family farms and local food systems confront unique challenges, and are entitled to distinctive legal protections. My law practice is dedicated to paving a brighter future for food systems, regardless of current economic conditions.

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