In re Douglass, Bankruptcy No. 87-00803-C-12.

• Decision Date: 11 September 1987
• Docket Number: Bankruptcy No. 87-00803-C-12.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Western District of Missouri
• Parties: In re Thomas Mitchell DOUGLASS III & Teresa Lynn Douglass, Debtors.

77 B.R. 714 (1987)

In re Thomas Mitchell DOUGLASS III & Teresa Lynn Douglass, Debtors.

Bankruptcy No. 87-00803-C-12.

United States Bankruptcy Court, W.D. Missouri, C.D.

September 11, 1987.

Jerry W. Venters, Jefferson City, Mo., for debtors.

Dale Reesman, Boonville, Mo., for Fayette Land Co.

Larry M. Woods, Columbia, Mo., for Centerre Bank of Columbia.

FRANK W. KOGER, Bankruptcy Judge.

MEMORANDUM OPINION

This Chapter 12 proceeding came on for hearing July 23, 1987 on confirmation. Substantial objections were made by Fayette Land Co., Centerre Bank and Commerce Bank. Those creditors, jointly and severally, raised three main objections. Initially, they assert that debtors do not qualify for Chapter 12 because less than 80% of the scheduled indebtedness was farm oriented. Debtors owned a very substantial residence in an urban area which was not located on nor adjacent to their farm acreage. Also debtors owned a service station and related non-farm business, again neither on nor connected to the farming operation. The creditors maintain that any debts secured by deeds of trust on at least the service station property do not arise out of a farming operation. Debtors, on the other hand, allege that this property was inherited free and clear and that the deeds of trust were placed against it to acquire funds to keep farming. If the Court excludes the debt for the residence as directed by 11 U.S.C. § 101(17)(A) and rules that the debts secured by deeds of trust on the service station are not "arising out of a farming operation", then the numbers presented by the parties indicate that debtors do not qualify under the 80% farm arising debt rule of Chapter 12, § 101(17)(A).

As yet there are no cases under Chapter 12 that have explored this particular territory (or at least the Court has found none). Therefore, the Court is constrained to its own reasoning, as well as its understanding of statutory language in determining whether the creditors' position or the debtors' position is sounder. For several reasons, the Court believes that the debtors' position is more appropriate. The Court believes that it is (or should be) the reason or purpose for which the debt was incurred coupled with the use to which the borrowed funds were put that should be the criteria to determine whether the debt "arises out of a farming operation".

However, it also seems to the Court that where debt is secured by nonfarm type property, it would be natural to consider it debt not arising out of a farming operation and thus the burden or responsibility of going forward with the evidence to show that the funds so generated were used in a farming operation devolves upon the debtor. To hold otherwise would not only cast the burden of proceeding upon the party with the least knowledge of the transaction but would also create a situation where that burden bearing party would in...