In a recent bankruptcy decision, In re Uhrenholdt, 2009 Bankr. LEXIS 144 (Bankr. D. Neb. 2009); No. BK06-40787, 2009 WL 198966 (Bankr. D. Neb. Jan. 26, 2009), the Chapter 12 debtor had raised corn in 2005 and retained the corn for use as feed for the debtor’s cattle. The debtor stopped raising corn after 2005. Prior to and after the bankruptcy petition was filed in July 2006, the debtor sold the corn to the debtor’s corporation on request from the lender which held a security interest in the corn.
The sales produced self-employment income to the debtor and the debtor’s Chapter 12 plan treated the taxes as a general unsecured claim under 11 U.S.C. Sec. 1222(a)(2)(A). The debtor and IRS agreed that the taxes were post-petition taxes because the federal tax return reporting the taxes was filed after the bankruptcy petition was filed.
The IRS argued that 11 U.S.C. Sec. 1222(a)(2)(A) did not apply because the corn was not an asset used in the farming operation but was farm produce. The court focused on the fact that the debtor no longer raised crops, used the corn to feed cattle in an on-going farm operation, and did not market the corn for public sale. Therefore, the court held that the proceeds of the corn sale to the debtor’s corporation for continued use in the farm operation was eligible for 11 U.S.C. Sec. 1222(a)(2)(A) treatment as an unsecured claim.
For a regularly updated listing of bankruptcy decisions applicable to the agricultural sector, please visit the Bankruptcy Case Law Index published by the National Agricultural Law Center.
(original blog entry submitted by Robert Achenbach, Executive Director, American Agricultural Law Association)
