A crowd is gathered at a farm auction in which a neighbor\'s farming goods are b

Question

A crowd is gathered at a farm auction in which a neighbor's farming goods are being sold. The people in the crowd, who are upset because they believe that the bank is selling out the farmer, begin chanting "no sale, no sale." In an effort to calm the situation, the farmer tells the crowd that "they've already foreclosed" on his farm. What does he mean?

Assume that the auction is a result of Chapter 7 bankruptcy proceedings. Was the farmer's petition for bankruptcy voluntary or involuntary? Explain.

Suppose that the farmer purchased the homestead three years prior to filing the petition in bankruptcy and that the current market value of the farm is $215000.

What is the maximum value of equity that the farmer could claim as exempt under the 2005 Bankruptcy Reform Act?

Compare the results of a Chapter 12 bankruptcy as opposed to a Chapter 7 bankruptcy for the farmer.

Explanation / Answer

Answer:

1. Foreclosed means taking possession of a mortgaged property when the mortgagor fails to keep up their mortgage payments.

2. As this is the case of chapter-7 bankruptcy therefore the farmer's petition is voluntary.

3. Under the Bankruptcy Reform Act of 2005, the farmer would only be able to claim $125,000 of the equity as exempt (even if the state law would permit a higher amount) because the homestead was purchased within the three and a half years preceding the date the farmer filed for bankruptcy.

4. For a Chapter 12 bankruptcy, the farmer would have to qualify as a family farmer (a farmer whose gross income is at least 50 percent farm dependent and whose debts are at least 80 percent farm related.) He would have to file a repayment plan but might be allowed to continue the business or to keep his assets. In addition, if the court approved his repayment plan, most of his debts would be discharged after a three- year period. Under Chapter 7, any nonexempt property would be sold with the proceeds distributed to the farmer’s creditors. Any dischargeable debts would be terminated. After liquidation and distribution, most debts would be discharged, which would give the farmer an opportunity for a fresh start.

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