In deciding whether someone is a “family farmer” eligible for chapter 12, partnership income is included, but scheduled debt is not, for creditors who did not file claims, according to Bankruptcy Judge Joan A. Lloyd of Louisville, Ky.

The case dealt with some of the family farmer eligibility requirements contained in Section 101(18)(A). An individual must generate more than 50% of “gross income” from farming and currently cannot have more than $4,153,150 in debt.

The secured lender objected to confirmation of the debtor’s chapter 12 plan, contending that the debtor did not meet chapter 12 eligibility requirements. Judge Lloyd rejected the lender’s objections and confirmed the plan in her Dec. 22 opinion.

The lender contended that the debtor could not use income from farming partnerships to meet the 50% threshold. Judge Lloyd said that the definition of “farming operation” in Section 101(21) must “be construed liberally in order to further Congress’ purpose of helping family farmers continue farming.”

Because the debtor had to include her share of partnership pass-through income in her personal tax returns, Judge Lloyd said “it would be inequitable to not allow this income to be included for eligibility requirements.”

Next, the lender argued that the debtor had too much debt for chapter 12 if scheduled-but-not-filed claims were added to claims of creditors who did file claims. Judge Lloyd rejected that argument, too.

She said it would be “inequitable” to use both filed claims and scheduled-but-unfiled claims, because unsecured creditors must file claims “to participate in the distributions.” Adding unfiled claims to filed claims would be “‘cherry picking’ to the disadvantage of the debtor,” the judge said.