Droughts like the one we’re experiencing on the West Coast take more than one wet winter to recover from. The snowpack takes time to rebuild, and it may be even longer before reservoirs and groundwater can be replenished. General citizens have been encouraged, or even mandated, to cut back on their water consumption, and this makes an even bigger impact on farmers who depend on water for their livelihood. Leaving fields fallow decreases overall production, which means less income, and pumping too much ground water can affect overall environmental health. Facing these dire circumstances, some farmers are at risk of losing their farms and homes. A farmer who is facing bankruptcy could decide to file a Chapter 7 or 13, or may decide to pursue a Chapter 12, which is also known as the family farmer bankruptcy. This can give them the relief from debt that they need while protecting their property and assets.
Saving Your Farm
A Chapter 12 is a restructuring of debt during a 3-5 year repayment plan, not unlike a Chapter 13. This option allows for the operation of the farm to continue while making reduced debt payments. A Chapter 12 may only be used by individuals or couples who make at least half of their income through their farm. Half of their debt, not to exceed $4,031,575, must also be due to farm operation. We’ll look at several factors to determine if this is the most beneficial way to file for you. Our first step will be to file a voluntary petition for relief, and then we’ll propose a repayment plan for the trustee to approve. The court trustee has 45 days to evaluate your case and either approve or reject your proposed plan.
A New Plan
As we create your plan, we’ll look at your overall finances, including your personal living expenses as well as farm operation expenses and debts. The plan will include paying all of your priority debts with any remaining disposable income going toward other debts equally. The most important thing we’ll need to do is create a realistic budget that you can stick to and that will allow you to keep your farm running, since all of your disposable income will be tied up for 3-5 years.
We’ll pay close attention to any secured debt you have related to your farm and will pursue a “cram down” of this debt, if you’re eligible. This would essentially reduce the amount you owe to the value of the collateral, with any remaining debt being converted to unsecured debt. In many cases, unsecured debt is discharged at the end of the payment plan, even if you haven’t paid anything toward it.
The trustee will only approve your plan if it is in the “best interest of your creditors,” which means the creditors receive at least what they would have in a Chapter 7. This all depends on many factors such as your income, living expenses, and total and type of debt.
Carry On
If you’re born into a farming family, it can be difficult to imagine doing anything else, and with the help of a Chapter 12 bankruptcy, you could be able to carry on the tradition, despite financial setbacks. I’m here to help, whether you need to change your business model or need the new start of a bankruptcy.