When The Going Gets Tough
ADAM BIRK
CAPE GIRARDEAU, MISSOURI
When the going gets tough, the tough get going. This has been the M.O. (“Modus Operandi” it’s the Law, of course there is a Latin origin) of farmers for years. To push through, don’t look back, don’t look sideways, just keep going forward. Philosophically speaking, this is honorable and commendable and we, as farmers, leaders, and heads of households, absolutely should get going and do whatever it takes to provide for those who rely on us including the American consumer, our employees, and our families. Practically speaking, the attitude of never looking back or sideways for reflection or alternatives is rather ridiculous and irresponsible. Providing for those who rely on us requires a tremendous amount of toughness and fortitude. Taking the time to reflect and admit what was done poorly in the past, to seek an alternative in the present, and to act upon a new direction for the future is exactly how the toughest of the tough get going.
Today’s farm economy is questionable at best. I am far from being an economist but we all have the ability to trust our gut. Commodity prices are struggling to stay mediocre and expenses seem to have no problem rising ever higher. The farm outlook ahead seems rather bleak and all of my conversations with farmers suggest that everyone is feeling the same economic pressure. When the going gets tough and decisive action must be taken to protect and care for those who rely on you, the tough sometimes pull a Michael Scott (“The Office”) and declare Bankruptcy.
Bankruptcy is a very complicated and specialized area of the law. You do not want the local attorney who does everything to suddenly jump in and do your bankruptcy. Bankruptcy can only be done at the federal level. No state court handles bankruptcy so you will likely have to travel some to the federal court building. Not only does bankruptcy require specialty as an area of law, but it is also very helpful if your attorney understands your business and situation so that they can best advise and fight for your best interests and outcome. An attorney experienced in both farming and bankruptcy is highly recommended.
There are many different types of bankruptcy called “Chapters.” Chapters 7 & 13 are the primary methods for individuals. Chapter 11 is for large corporations. And Chapter 12 is specifically designed for family farmers and fishermen. Each Chapter is different with its own special rules and differences in how the bankruptcy goes about being completed. This article and the next will focus on Chapter 12 bankruptcy for family farms.
So how does the Chapter 12 bankruptcy work? The over-arching, primary goal of a Chapter 12 bankruptcy is to repay all or part of the farm debts over the next 3-5 years. The idea is to get a grip on all of the debts and work out a plan which is actually feasible to pay back. Some debts may be expunged/dismissed, many will be completely paid off, and some, like land debts, may continue past the 3-5 year plan. The first step to bankruptcy is to file a petition with the bankruptcy court along with the accompanying required financial statements. Do this with an experienced farm bankruptcy attorney. Upon filing the bankruptcy, an “automatic stay” is put in place. This means that creditors generally must stop all demand communications with you, may not garnish wages, or initiate or continue collection or foreclosure suits. Generally speaking, a bankruptcy can silence much of the noise.
Once filed, a “Trustee” is appointed to administer the case. The Trustee acts as the point-man for the creditors, particularly the unsecured creditors. His role is to evaluate the case and represent the creditors as a whole in establishing a fair plan for paying them back as much as possible. Once the plan has been created, the Trustee will act as the disbursing agent; collecting payments from the debtor and distributing to the unsecured creditors. A great advantage of a Chapter 12 Bankruptcy is that your unsecured creditors get consolidated and you have only 1 unsecured payment to make, to the Trustee.
After meetings with the Trustee and creditors, conversations with your attorney, and negotiations by your attorney on your behalf, a plan will be created and submitted to the bankruptcy court. If the judge approves of the plan, then you must follow the plan over the next 3-5 years as decided by the plan. If you don’t follow the plan, the creditors are turned loose once again to come after you with full force of the law. If you do follow the plan, certain debts may be discharged and you can get your finances under control again while hopefully avoiding a severe sell-off of assets.
The next few articles will be focused on the finer details of Chapter 12 Bankruptcy so be sure to stay tuned in to learn more about how it works and how to prepare for or hopefully avoid bankruptcy. This article and the statements made within are intended for informational purposes only. In no way should this article and the statements made within be construed as legal advice. If you are considering bankruptcy, consult with your attorney. If you have questions regarding Chapter 12 Bankruptcy or have topics you’d like me to discuss, please email me at abirk@birklegal.com. ∆
ADAM BIRK: Birk Law Firm, LC