In re McKillips
| Decision Date | 27 April 1987 |
| Docket Number | Bankruptcy No. 86 B 21676. |
| Citation | 72 BR 565 |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
| Parties | In re Leslie J. McKILLIPS and Patricia McKillips, Debtors. |
Wesley E. Lindberg, Rockford, Ill., for Home Federal Sav. and Loan.
Kenneth F. Ritz, Rockford, Ill., for debtors.
This matter comes before the Court on the Motion of Home Federal Savings and Loan Association of Rockford (Home Federal) to Dismiss Debtors' Chapter 12 petition. Home Federal is represented by Attorney Wesley E. Lindberg. The M & I Bank of Beloit, who joins in Home Federal's Motion, is represented by Attorney William W. Rentz. The U.S. Trustee is represented by Attorney Larry Ramey. The Chapter 12 Standing Trustee is represented by Attorney Mary P. Gorman. The Debtors are represented by Attorney Kenneth F. Ritz.
This Memorandum Opinion and Order shall represent findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
The Debtors are involved in a horse breeding, training and showing operation. They own 14 acres of land upon which they have their principal residence and two buildings with horse stables; one of the stables contains a training arena. On this land, the Debtors raise 10 acres of alfalfa which they use as feed for the horses. The Debtors also rent approximately 27 acres, used as pasture for the horses.
The Debtors own none of the horses located on the property. They earn income in several ways. Mr. Lans, a third party who may be considered a partner in the Debtors' operation, provides the Debtors with mares owned by him. The Debtors breed the mares which results in colts. The colts are raised, trained and showed by the Debtors, then sold. Any excess money received above the costs of raising the colts is split equally between the Debtors and Mr. Lans. Mr. McKillips testified that the training and showing of colts increases their value.
Another way in which the Debtors earn money from the horses is, again, mares provided by Mr. Lans are bred, resulting in colts. The colts are sold soon after birth, but kept by the Debtors for training and showing. The Debtors split the profit from each sale with Mr. Lans and charge the new owner of the colt a monthly boarding charge, which includes fees for training. There are additional fees if the Debtors show the colt.
A third income generating mechanism involves third persons bringing their horses to the Debtors for training. The Debtors charge a training fee, which includes feed and care, and additional fees for showing. The Debtors do not solely board any horses. When someone brings his horse to the Debtor, more is done with the horse than merely caring for it.
The final major income producing device involves breeding fees. The Debtors keep several stallions which, for a fee, they will use to breed third person's mares. The Debtors make minor amounts of income through the buying and selling of horses.
The Debtors' tax return for the taxable year 1985, the year prior to this Chapter 12 petition, shows gross income from the business, wages and other gains and losses of $168,388. See, In re Etheridge, 68 B.R. 235 (Bankr.C.D.Ill.1986). The return shows income from training and showing of horses of $132,550. Mr. McKillips listed his occupation as "horse trainer".
Section 101(17) of the Code provides, in pertinent part:
11 U.S.C. Section 101(17). Section 101(20) provides:
(20) "farming operation" includes farming, tillage of the soil, dairy farming, ranching, production or raising of crops, poultry, or livestock, and production of poultry or livestock products in an unmanufactured state.
11 U.S.C. Section 101(20). Section 109(f) provides:
(f) only a family farmer with regular annual income may be a debtor under Chapter 12 of this title.
11 U.S.C. Section 109(f).
The concept of "family farmer" is new to the Code with the advent of Chapter 12, Adjustments of Debts of a Family Farmer With Regular Annual Income. Bankruptcy Judges, United States Trustees and Family Farmer Bankruptcy Act of 1986, Pub.L. No. 99-554, eff. Nov. 26, 1986. However the concept of "farmer," and "farming operation" have deep roots in American bankruptcy law. For an excellent discussion, see Anderson, J.C., AN ANALYSIS OF PENDING BILLS TO PROVIDE FAMILY FARM DEBTOR RELIEF UNDER THE BANKRUPTCY CODE, 132 Cong.Rec. S15076 (daily ed. Oct. 3, 1986). The concepts of "farmer" and "farming operation" have been litigated in relation to Section 303(a) of the Code, which prohibits filing an involuntary petition against a farmer; and Section 1112(c) of the Code, which prevents the conversion of a farm debtor's case from Chapter 11 to Chapter 7. The only difference between the definition of "family farmer" and "farmer" is the difference between the percentage of income earned from the "farming operation". (Note: the definition of "farmer" requires that 80% of the person's income result from farming operations, Section 101(19), while the definition of "family farmer" requires that 50% of the persons income result from farming operations.) Otherwise there is nothing in the Congressional history which would indicate that a different test is to be used. The Court, therefore, may look to cases decided under Sections 303(a) and 1112(c) in order to decide whether the Debtors are family farmers within the meaning of the Code.
Initially, the Court notes that what the Debtors do is not farming or ranching in the natural or traditional sense of those terms. Nor would most of what the Debtors do fall within the dictionary definition of those terms. It is true the Debtors raise some crops, alfalfa. The entire crop, however, is insufficient to provide a substantial source of feed for the horses. Most of the feed used is purchased from the outside. The Debtors also raise horses, which are livestock. However, this activity is incidental to their main occupation, training and showing horses.
The Debtors' operation is essentially a service occupation, not the production of agricultural goods for consumption. Nevertheless, the Court will not confine itself to a natural or traditional, or even a dictionary definition of "farming operation". There may be other businesses which do not seem to fall within what is traditionally thought of as farming, i.e., a sod producer, but which very well may qualify for Chapter 12. It is the intent of Congress, as embodied in the Bankruptcy Code, which...
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In re Sugar Pine Ranch
...to fall within what is traditionally thought of as farming, . . . but which very well may qualify for Chapter 12. In re McKillips, 72 B.R. 565, 568 (Bankr.N. D.Ill.1987). Courts should look to the totality of the circumstances involved in the debtor's operation keeping in mind the remedial ......
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