Who Gets the Check: Determining When Federal Farm Program Payments are Property of the Bankruptcy Estate

Abstract

This article discusses a unique area of law that is of great importance to rural America - agricultural payments made pursuant to the various federal farm programs. In recent years, these payments have grown to become a significant component of net farm income that is capitalized into the value of agricultural real estate, provided as collateral for agricultural loans, and justified as support to the overall rural economy. When an agricultural producer experiences financial distress and files for relief in bankruptcy, rights to these payments are often vigorously contested. In particular, the question of when the payments are property of the bankruptcy estate has been an issue of controversy. At what point in the complex process of federal farm program policy does a producer have a right to payment? What factors are significant - contract performance, contract formation, implementation of the program, or the statutory enactment of the program? How far back in time does the producer have a "right" to payment that will bring it into the bankruptcy estate? Does the character of the program matter? Unfortunately, the case law has been historically inconsistent and the courts' reasoning difficult to apply. The attached article examines this important issue, discusses several recent and significant appellate court decisions, and suggests guidance for future litigation.

Keywords: farm programs, bankruptcy, property of the estate