Congress Needs to Help Family Businesses in Financial Stress — Not Punish Them!

A market economy (photo by Marilyn Swanson)

By: Donald L. Swanson

We live and work in a market economy, here in these United States. The market is our economic judge: it validates—or invalidates—business decisions, and it picks winners and losers.

The market is an efficient, impartial and unbiased judge. But it is also cruel and unforgiving.

The result is that many businesses succeed. And many succeed for a very long time.

But most fail over time—sooner or later. Many fail at the beginning. Others are successful for a while but then fall on hard times and go out of business. That’s life in our market economy: the opportunity for success . . . and the risk of failure.

We applaud business success

Here in these United States, we applaud success. And we count on our businesses, both large and small, to be successful. Our economy depends upon business success: people need to be employed, taxes need to be paid, services need to be provided. And it is the successful businesses that provide funds to make life work.

But what about business failures

There is a down side. Business failures are also with us . . . as are financial tragedies for individuals involved. Such are the unavoidable consequence of our market economy.

We don’t do well, here in these United States, with business failure. When, for example, a family business goes under, the owners and operators face personal loss, both financially and to their reputations. It’s a devastating experience.

Bankruptcy laws

Bankruptcy laws are our way of dealing with business failure.

You’d think that a prosperous nation thriving on a market economy would make generous provision for those who risk everything and are judged harshly by the market.

But we don’t. What we do, instead, is treat them harshly . . . with disrespect . . . and punishment. Our bankruptcy laws pile on and kick them while they’re down.

–Seriously! That’s what our bankruptcy laws do.

Our bankruptcy laws may provide well for, (i) large businesses with lots of passive owners, and (ii) consumers. But our bankruptcy laws are particularly disdainful of failed family businesses and their owners—and especially those who were once successful.

–Seriously! That may be hard to believe. But it’s true.

Two examples of disdain for family businesses—and potential corrections

Here are two examples from bills currently wending their way through the U.S. Senate.

–Small Business Reorganization Act

First. The Small Business Reorganization Act (S. 1091). You’d think this Act is proof-positive, if passed, that Congress truly cares about small businesses and those who risk everything to make a business happen. And on the surface, you’d be right: this bill provides much-needed relief for small businesses. And it needs to be enacted immediately—with one change.

Here’s the catch: to qualify as a small business under the Act, the debtor must have less than $2.6 million of debt.

Seriously?! What formerly-successful business has that little debt?! Congress apparently wants to protect, based on the $2.6 million limit, only tiny businesses—not small businesses. Most successful businesses have more debt than that. Heck, the current obligations of many for inventory and trucking and utilities and payroll are probably more then that—without adding in long term obligations for real estate and equipment purchases or leases. Scheesh!

The Small Business Reorganization Act is a great piece of legislation that needs to be enacted at once. But its $2.6 million debt limit needs to go away.

–Family Farm Relief Act

Second. The Family Farm Relief Act (S. 897). In 1986 Congress created Chapter 12 to help family farmers reorganize. There has always been a debt limit on eligibility for Chapter 12. That limit began in 1986 at $1.5 million and has increased with inflation to a current $4.4 million.

The problem is that changes in farming over the past three decades have been greater than inflation. Farming has changed from labor-intensive in the 1980s, with small equipment, to huge equipment and high tech efficiency today. The result is that, (i) today’s farm operations are huge, with corresponding high debt amounts, and (ii) the $4.4 million debt limit excludes career family farmers from Chapter 12—maybe all of them.

The $10 million limit being proposed in S. 897 is great. It’s at least a far-cry better than $4.4. But why have a debt limit at all for family farmers? If the goal of Chapter 12 is to protect family farms (as opposed to corporate farms owned by a bunch of passive investors), why not include all family farms—not just the smaller ones? Only Congress knows the answer.


Congress has always had a fixation on helping huge businesses and consumers, while punishing family businesses and their owners. Why is this? I don’t know.

But the fixation is real. It has always been a problem. It has hurt family businesses and their owners for many decades past. And it needs to go away . . . as soon as possible.

The two items of legislation noted above are perfect vehicles to make that happen.

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