Crushed: Gravel Business Not Eligible for Farmer Bankruptcy

Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.

By Daniel Gill

A North Carolina woman engaged in some farming activities couldn’t qualify as a “family farmer” for bankruptcy because most of her assets and debts were linked to a gravel business, ( In re Carter , 2017 BL 158263, Bankr. M.D.N.C., Case No. 17-50262 Chapter 12, 5/11/17 ).

The woman also filed her Chapter 12 case in bad faith, the U.S. Bankruptcy Court for the Middle District of North Carolina found.

On March 10, 2017, Carol Carter filed a Chapter 12 case designed to protect family farmers and family fishermen.

But this was not the first bankruptcy case by Carter involving her 390-acre property. She and her husband had previously filed separate Chapter 13 cases. Chapter 13 allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three- to five-year period.

Both Chapter 13 cases were dismissed, and secured creditors sought to foreclose on their interests in different parcels of the Carters’ property. Carter filed her Chapter 12 case before those foreclosures could close, the court said.

Although some property was dedicated for allegedly proper farm use—Carter said they were producing timber and they leased a parcel to their son for him to farm—most of the Carters’ assets and their debts were tied to a partnership designed to produce and sell rock aggregate or gravel.

The court found that the gravel business was closer to mining than it was to farming. The rocks weren’t subject to any of the risk factors generally inherent with farming, including drought or flooding.

To be eligible to be a debtor under Chapter 12, the court said at least 50 percent of the debt must arise from farming operations. Here, most of the debt was connected to the rock venture.

Similarly, less than half of the debtor’s income had been from her farming enterprises, another requirement for qualifying as a debtor in Chapter 12.

Finally, the court found that Carter filed her case in bad faith. It found that the debtor was less than truthful in its bankruptcy disclosures and filings, including in her prior Chapter 13 case.

The decision by Judge Lena Mansori James prohibits Carter from filing another bankruptcy case for one year.

Kristen Nardone, Concord, N.C. , represented Carter. Carolina Farm Credit, ACA was represented by Daniel C. Bruton, Winston-Salem, N.C.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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