In re Welch, Bankruptcy No. 3-86-03256
| Decision Date | 29 May 1987 |
| Docket Number | Bankruptcy No. 3-86-03256,3-87-00186. |
| Citation | 74 BR 401 |
| Parties | In re James C. WELCH, Betty F. Welch, Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
Ray A. Cox, Dayton, Ohio, for Farm Credit Services.
Jennings Hurt, Dayton, Ohio, for Federal Land Bank of Louisville.
Richard Goettke, Mt. Orab, Ohio, for debtors.
Steven Fansler, West Liberty, Ohio, Trustee.
DECISION AND ORDER DENYING MOTIONS TO DISMISS
This matter came before the court in cases filed by James and Betty Welch which were consolidated for the hearing on motion to dismiss filed in each case by Farm Credit Service of the 4th District, formerly known as Miami Valley Production Credit Association, and the Federal Land Bank of Louisville. Each of the movants is a secured creditor.
Each creditor grounds its motion upon the alleged failure of the debtors to qualify as "family farmers" under the new chapter 12 of the United States Bankruptcy Code. The definition of "family farmer" is contained at 11 U.S.C. § 101(17)(A) which reads in part:
(A) individual or individual and spouse engaged in a farming operation whose aggregate debts . . . on the date the case is filed, arise out of a farming operation owned or operated by such individual or such individual and spouse, and such individual or such individual and spouse receive from such farming operation more than 50 percent of such individual\'s or such individual and spouse\'s gross income for the taxable year preceding the taxable year in which the case concerning such individual or such individual and spouse was filed;
Debtors filed separate petitions. James C. Welch filed his petition, pro se, on December 11, 1986. After a consultation with a lawyer, Betty Welch filed her petition on January 22, 1987. Each debtor now has the same counsel. At request of counsel the court granted the motion for the cases to be consolidated and to be administered jointly. A joint plan was filed under chapter 12 by the debtors on March 11, 1987. Farm Credit Service filed its Motion to Dismiss on March 17, 1987 and the Federal Land Bank of Louisville filed its Motion to Dismiss on March 30, 1987. At the Confirmation Hearing it was determined that the motions to dismiss must be resolved before the matter of the confirmation of the plan may be considered. At an evidentiary hearing on the motions to dismiss, evidence was presented and arguments of counsel were made to the Court on the issue of the eligibility of these debtors to be debtors under chapter 12 of the United States Bankruptcy Code.
The filing of the cases by the debtors in different years complicates the rather clear congressional test recited in 11 U.S.C. § 101(17)(A), which requires the individual or individual and spouse to qualify based upon the gross income for the taxable year preceding the taxable year in which the case is filed.
The individual and his spouse had gross income in 1985 as follows:
Farm income (including Agricultural
Program payments of $23,019.31) $115,816.25
Betty Welch, Teacher's Salary 27,980.00
___________
$143,796.25
Rental income of residential property 3,185.00
___________
1985 TOTAL GROSS INCOME $146,981.25
At the evidentiary hearing on the motions to dismiss the debtors' evidence established their 1986 income to be as follows:
Actual milk money, January
February and December $ 8,252.02
Grain sold 1,777.97
Milk — contract with Seymour 8,400.00
Grain received for moneys advanced
for preparation, plant, seed
fertilizer 15,000.00
Crops — contract with Seymour 5,500.00
Animals sold 2,215.00
___________
$ 41,144.99
Government payments 4,750.00
___________
$ 45,894.99
Teacher's salary 30,000.00
___________
1986 TOTAL GROSS INCOME $ 75,894.99
DECISION
This is a case of first impression under the new chapter 12 "family farmer" provisions of the Bankruptcy Code. The two filings by the individual debtors have given the moving secured creditors an illusory opportunity to question the debtors' eligibility under chapter 12.
The Court is able to clear the tangle of procedural underbrush by recognizing that the cases have been consolidated and the debtors are married. Procedurally the first filing should be considered the filing for the consolidated cases. However, as will be shown, whether the filing is in 1986 or 1987 does not produce a different result on the issue of the eligibility of these debtors to file as "family farmers" for the protection of chapter 12. The income test is to be applied to the individual and spouse at the time of filing. There was no credible evidence presented at the hearing to challenge the eligibility of James C. and Betty Welch if their filing had been in 1986. The 1985 tax return presented at the hearing as defense Exhibit "A" clearly demonstrates that the individual and his spouse had farm income of more than fifty percent (50%) of the gross income of the couple for that year.
It is apparent that in 1985 the gross income of the individual and his spouse received from a farming operation of $115,816.25 was more than fifty-percent (50%) of $146,981.25, being the total gross income of the individual and his spouse. The fifty percent (50%) threshold is met even if the government program payment of $23,019.31 is deducted from farm income.
Next we consider the qualification of the Welches if the filing of their cases is in 1987. This review requires an examination of the gross income of the "individual and spouse" for 1986. The creditors at the hearing cross-examined James Welch concerning his statement at his § 341 meeting that he had received no income from farming in 1986. The court finds James Welch's explanation credible as he gave detailed testimony of his income for the year 1986 at the evidentiary hearing. From that testimony we learned that James Welch operated his milk operation solely for two months and part of a third during the year 1986. He received all of the milk money for January, February and a part of December totalling $8,252.02. For the remainder of the year James Welch did about one-third of the milking and received $8,400 from milk proceeds for that work on a contract with his son-in-law. He sold grain, receiving the proceeds of $1,777.97. James Welch prepared the ground, planted the crop and used seed and fertilizer and was reimbursed in grain or cash of $15,000 when the grain was sold in the fall. On a contract with his son-in-law, Seymour, he received $5,500 for allowing Seymour to use his land. He sold animals resulting in sale proceeds of $2,215. His total receipts for 1986 for the above were $41,144.99. As a participant in the government program he received as a deficiency payment, based upon the low price of corn, the sum of $4,750. The aggregate total of these receipts is $45,894.99. During the year 1986 Betty Welch received compensation for teaching in the Mechanicsburg School District the sum of $29,000 to $30,000.
The Court finds invalid the creditors' contention that the contract to share milk proceeds is not dairying, that...
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