First National Bank v. Woods (In Re Woods), 743 F.3d 689

First National Bank of Durango appeals the BAP’s affirmation of the bankruptcy court’s confirmation of the Woodses’ Chapter 12 plan.
The central issue is whether the Woodses’ debt for their principal residence can be classified as arising from a farming operation under 11 U.S.C. §101(18)(A).
The construction loan portion of a $480,000 loan used to build the principal residence on farmland is the key debt in dispute.
The bankruptcy court and the BAP treated the construction loan as arising from farming, based on residence-related factors and proximity to the farm.
The Tenth Circuit adopts a direct-and-substantial-connection standard and an objective direct-use test for loan debt, and remands for application of that standard.
The court emphasizes that the exception to the rule must be narrowly construed to avoid rendering the residence-debt exclusion meaningless.

Issue	Plaintiff's Argument	Defendant's Argument	Held
How to define debt arising from a farming operation	First National argues for a use-based test focused on funds used in farming.	Debtors contend the debt arises if sufficiently linked to farming activities.	Court adopts direct-and-substantial-connection with an objective direct-use test and remands.

In re Kan Corp., 101 B.R. 726 (Bankr. W.D. Okla. 1988) (proceeds must be directly used in farming to arise out of farming)
In re Saunders, 377 B.R. 772 (Bankr. M.D. Ga. 2007) (some-connection test rejected as inconsistent with direct-and-substantial-connection)
In re Easton, 883 F.2d 630 (8th Cir. 1989) (purpose-of-loan inquiry tied to how proceeds are used)
In re Watford, 898 F.2d 1525 (11th Cir. 1990) (Chapter 12 eligibility aims to help true family farmers)