Chapter 12 and farm
bankruptcy in Minnesota.

Karl represents farm operators, farm families and family-owned farming corporations and partnerships whose debt can no longer be serviced on its current terms. He also represents lenders, trustees and other creditors in agricultural bankruptcies, so every new matter begins with a conflict review. Experience on each side of the table informs how he evaluates a proposed restructuring.

Karl is one of only three attorneys in Minnesota certified as a Business Bankruptcy Specialist by the American Board of Certification, and he has appeared as attorney of record in thousands of bankruptcy cases under Chapters 7, 11, 12 and 13. Meet Karl Johnson.

Chapter 12 was written for the economics of farming. Compared with a general business case under Chapter 11, it is more streamlined and usually less expensive, it does not involve the disclosure statement and creditor voting process used in a traditional Chapter 11 case, and a Chapter 12 trustee is appointed to receive plan payments and distribute them to creditors. Compared with Chapter 13, it accommodates the larger debts and seasonal income common in agriculture.

Eligibility is narrower than in either of those chapters, which is why the analysis starts with whether the operation qualifies at all. Where it does not, or where Chapter 12 is not the best fit, Karl evaluates Chapter 11 and Subchapter V, a negotiated workout or, in some situations, an orderly liquidation.

Only a “family farmer” or “family fisherman” with “regular annual income” may file under Chapter 12, and only the debtor may start the case. For an individual, or an individual and spouse, the Bankruptcy Code asks whether the person is engaged in a farming operation, whether total debt falls within a statutory cap, whether at least half of the fixed debt (excluding a home mortgage that is not tied to the farm) arises from farming, and whether more than half of gross income in the prior tax year, or in each of the second and third prior years, came from farming.

A family-owned corporation or partnership can qualify under related tests concerning family ownership and operation, the farming character of its assets and debt, and the absence of publicly traded stock. The debt cap is adjusted periodically, so the current figure should be confirmed at the time of filing rather than taken from a general summary. Eligibility is not a matter of debt size alone, and not every farm qualifies. A recently dismissed prior case and the credit counseling requirement for individuals can also affect timing.

In most Chapter 12 cases the farmer remains in possession of the operation and continues to farm while the case proceeds. Filing triggers the automatic stay, which generally stops collection actions, foreclosures and repossessions while the stay is in effect, subject to statutory exceptions and to a creditor’s right to ask the court for relief from the stay.

A Chapter 12 trustee is appointed to review the case and to receive and distribute plan payments. Ordinary operating decisions remain with the farmer. Significant transactions outside the ordinary course, such as selling land or major equipment, generally require court approval.

A Chapter 12 plan must provide secured creditors with at least the value of their collateral, and it must pay priority claims, such as many tax obligations, in full unless the creditor agrees otherwise. One feature of Chapter 12 is that payments on long-term secured debt, such as a land mortgage or an equipment loan, can in appropriate cases extend beyond the three-to-five-year plan period, with any arrearage cured during the plan.

Whether particular land or equipment can be retained depends on its value, the debt against it, the operation’s ability to make the required payments and the creditor’s position. Unsecured creditors need not be paid in full, but they must receive at least what they would receive in a Chapter 7 liquidation, and the plan must commit the debtor’s projected disposable income for the plan period.

Chapter 12 recognizes that farm income can arrive in a few months of the year. Plan payments may be structured around the operation’s actual cash cycle rather than in level monthly installments, but the plan must still be feasible. The court decides at a confirmation hearing whether the proposed payments are realistic in light of projected yields, prices, input costs, living expenses and existing obligations. A plan generally runs three years, or up to five years for cause.

Realistic projections, supported by production history, marketing plans and documentation a lender will recognize, are usually the difference between a plan that can be confirmed and one that cannot. Cash flow therefore requires individual review before anyone can say whether Chapter 12 is a workable route.

A farm entity’s filing does not, by itself, release an owner from a personal guarantee, and an individual’s filing does not automatically protect a co-signer or guarantor who is not in bankruptcy. Chapter 12 includes a co-debtor stay for certain consumer debts, but farm operating and equipment debt generally falls outside that protection.

Each creditor’s position (secured, priority or unsecured), the value of its collateral and the strength of its lien affect what a plan must offer. Karl reviews guarantees, cross-collateralization, landlord and input-supplier claims and any government-guaranteed loans as part of the initial analysis. Read our guide to business debt and personal guarantees.

For a first conversation, identify the operation and its owners, the main lenders and other creditors, whether operations are continuing, and any scheduled sale, foreclosure, replevin, mediation or court deadline. Please do not send detailed financial records, tax returns or loan files until the firm has completed a conflict review and arranged a secure method for exchanging documents.

After that review, Karl will identify what is needed to evaluate eligibility and cash flow, which typically includes recent tax returns, balance sheets, debt schedules, security agreements, leases and production and marketing records. For general background, see the U.S. Courts overview of Chapter 12. Outcomes depend on the facts of each operation; nothing on this page promises a particular result.

Karl handles agricultural bankruptcies, including Chapter 12 matters for family farmers and the creditor disputes that can accompany a farm restructuring. His teaching includes “Effectively Utilizing Chapter 12 Bankruptcy as a Tool in Agricultural Workouts” for Independent Community Bankers of Minnesota in 2017, an agricultural law and bankruptcy case-law update for the State Bar Association of North Dakota in 2020, and “Hot Topics in Chapter 12 Bankruptcy” for the Minnesota State Bar Association in 2025.

He works alongside Matthew Bialick when a farm restructuring intersects with agricultural litigation, lender disputes or collateral recovery.

Karl JohnsonAgricultural litigation and bankruptcyBankruptcy and restructuringBusiness bankruptcy and Chapter 11Agricultural finance and workouts