2002 #23       Sayles 11-5-02

RE: TODD H. AND JILL R. SAYLES, Bankr. No. 01-41423, Chapter 11

The matter before the Court is First Dakota National Bank's Motion to Dismiss or Convert to Chapter 7 and Debtors' response. This is a core proceeding under 28 U.S.C. § 157(b)(2). This letter decision and accompanying order shall constitute the Court's findings and conclusions under Fed.R.Bankr.P. 7052 and 9014. As discussed below, Debtors' case will be converted to Chapter 7.

Summary. Todd H. and Jill R. Sayles filed a Chapter 11 petition on December 17, 2001. Though several months passed, Debtors never proposed a plan of reorganization. First Dakota National Bank filed a motion to dismiss or convert the case, which Debtors resisted. A hearing on the Bank's motion was held October 8, 2002. The Court entered an interim ruling that Debtors' case would be converted to a Chapter 7 unless Debtors could show that they were farmers as defined by 11 U.S.C. § 101(2) and thus protected from conversion of their case by 11 U.S.C. § 1112(c). Income documentation for 2000 (year before the petition was filed) was received from Debtors and both Debtors and the Bank filed letter briefs.

Debtor Todd Sayles urged the Court to exclude his wife's non farm income from the calculation under § 101(20) because the couple had separated before the petition date. On that premise, Debtor Todd Sayles argued that his 2000 farm income was in excess of 65% of his total income and that the Court should treat him as a farmer. The Bank responded that none of Debtors' documentation showed that their gross farm income was at least 80% of their total gross income in 2000.

Discussion. The Bank is correct that Debtors have not shown that they are farmers under § 101(20). That section requires that to be a farmer a debtor must receive from a farming operation more than 80% of his gross income during the taxable year preceding the bankruptcy petition. Even accepting all of Debtor Todd Sayles arguments that his co-debtor wife's non farm income should be excluded from the calculation and that his rental of farm land constitutes operation of a farm, he still falls short of the minimum 80% requirement. Thus, neither he nor his co-debtor wife is a farmer as defined by § 101(20). Accordingly, their Chapter 11 case can be converted to Chapter 7 case under 11 U.S.C. § 1112(b).

A conversion order will be entered.