Chapter 12

In the face of major bankruptcies, everyday debtors can get relief.

Most everyone is familiar with a Chapter 11 bankruptcy, or a Chapter 22 — the latter is insider jargon for those who go through the reorganization process twice. There’s also a Chapter 9 bankruptcy, which is what the city of Detroit is working its way through.

But few know about Chapter 12, due mostly to its rarity. It was designed to assist farmers and fishermen who generate a steady income and who, for whatever reason, saw their revenue plummet due to an accident, severe weather damages, or other hardships.

In the case of Miller’s Big Red Farm in Washington Township, a 47-acre operation that offers everything from a corn maze to baked goods to apple cider to an aquaponics facility, an abnormal and deep freeze following an unusual warm-up in the spring of 2012 proved to be the last straw in a succession of accumulating debt.

“The Miller family lost all of their crops (that spring), and while they received some relief from the federal government, it wasn’t nearly enough to cover their losses, which had been accumulating for some time,” says Ryan Heilman, a bankruptcy expert and member of Wolfson Bolton, a law firm in Troy.

Following a referral from Roger Mali, an attorney representing a lender in the deal, Heilman orchestrated a Chapter 12 Plan of Reorganization starting in April 2013 in the U.S. Bankruptcy Court for the Eastern District of Michigan in Detroit (Judge Walter Shapero oversaw the proceedings).

The farm remained open throughout the tenure of the case, but it wasn’t easy. Apples and other produce had to be brought in to supplement the lost crops, and by the end of 2012 and into early 2013, the lenders started foreclosure proceedings. With accumulated debt of around $800,000, Heilman convinced Ken and Ray Miller that the best path forward was a Chapter 12 bankruptcy. Having inherited the farm and a general store from their father, the brothers were adamant the land be kept from a residential developer.

“The key was finding an investor who would cover the final debt as well as getting the approval of the court for a plan of reorganization,” Heilman says. “One of the big goals, which was worked on throughout the bankruptcy, was to diversify the farm’s offerings so that it wasn’t beholden to a successful apple crop year after year. As we saw, that wasn’t sustainable.”

Enter Jeff Mulholland, a financial expert who is active in several businesses, including The Mulholland Group, a development enterprise where he serves as the CEO, and Recovery Law Group, of which he is the CFO. Both companies are located in Birmingham. Mulholland agreed to cover the debt and work with the court, and a handful of other investors committed some $80,000 to see the operation out of bankruptcy.

Under the plan, the newly formed Miller’s Big Red Holding was required to make six months of interest-only payments, followed by monthly interest and principal payments and, finally, a balloon payment at the end of 2018. Having exited bankruptcy in the fall of 2013, the operation has been meeting all of its obligations, Heilman says.

While the Miller family is no longer sole owner of the property, Ken became an employee of the new operation. “The good thing about Chapter 12 is that it allows farms to remain farms,” Heilman says. “The key was finding an investor. If that doesn’t happen, nothing else will happen.” db

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