The answer may be yes! Farming is a very challenging profession. Even successful farmers are one bad crop yield or sickness in a livestock herd from struggling. Kansas is one of the states that saw a decade-high number of Chapter 12 Filings in 2018.
Chapter 12 was developed in the 1980s to save farmers from a collapse in the farm lending system. Without banks willing to loan to farmers, farmers could not afford crop inputs, new machinery, and improvements to their land. Chapter 12 bankruptcy operates like Chapter 13 bankruptcy: The debtor pays a standing trustee money. The trustee then pays that money to creditors according to a plan. But Chapter 12 provides benefits that Chapter 13 does not.
The most important difference for many debtors is the ability to modify a loan secured by a principal residence. That means the ability through a Chapter 12 plan to free up money by changing the terms of mortgage loans and other significant loans. We all know how frustrating it can be to work with mortgage lenders. They all seem to have long, drawn-out processes for modifying or refinancing loans. Chapter 12 Bankruptcy can help Kansas and Missouri farmers effectively re-write certain loans through their bankruptcy plans.
How does this work? Suppose Big Farm Bank has loaned Fred Farmer $400,000, and Fred Farmer has granted Big Farm Bank a mortgage on Fred’s house. Under Chapter 13, Fred could not ask the Bankruptcy Court to change the terms of the mortgage. But in Chapter 12, Fred could look to change the length of the loan, the interest rate, the value of the loan, and allow Fred to keep his home.
Also, instead of fixed monthly payments, farmers can look to pay one yearly payment to the trustee or some other irregular payment. This would allow farmers to pay the trustee after receiving payments for their crops or after their animals are sold and net proceeds are available.
If you are a Kansas or Western Missouri farmer and are behind on your payments or about to become late, please give us a call to discuss whether bankruptcy is an option to help your farming operation stay alive.
By Ryan Blay, W M Law Attorney