Falling behind on taxes can cause serious financial stress, especially for farmers. Unpaid taxes often push small farms into considering bankruptcy. Chapter 12 bankruptcy offers a way for eligible family farmers to reorganize their debt and keep their operations going.
How tax debt affects family farms
Farms run on tight margins. One bad season, unexpected repair, or dip in crop prices can lead to missed tax payments. The IRS or New York State can place liens on farm property or start collection actions. These actions may include seizing assets or garnishing income, putting your livelihood at risk.
Chapter 12 bankruptcy gives you breathing room. It stops collection actions immediately and lets you propose a repayment plan. The plan spreads payments over three to five years, allowing you to catch up while continuing to farm.
Why Chapter 12 works for farmers
Chapter 12 is designed specifically for family farmers and fishermen. It’s more flexible than other chapters. You don’t need to sell off land or livestock to qualify. It allows you to restructure both secured and unsecured debt, including certain tax obligations.
New York farmers often benefit from this option because it’s tailored to the seasonality and unpredictability of agricultural work. As long as more than 50% of your income comes from farming, and your debts are below the legal limit, Chapter 12 could help you keep your land and stay operational.
Taxes and bankruptcy discharge rules
Not all taxes go away in bankruptcy. But Chapter 12 allows for repayment under manageable terms. Older income taxes—if filed on time and meeting specific criteria—may be dischargeable. Payroll taxes and recent returns usually aren’t. You can still propose a plan that pays them off gradually, without pressure from tax agencies.
Get ahead of tax trouble
If tax debt is growing and your farm is feeling the strain, you have options. Bankruptcy isn’t the end—it’s a financial tool. Chapter 12 provides a way to reset, protect your land, and continue farming while addressing tax issues.
