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Farm Bankruptcies on the Rise Thanks to Trade War, Weather

A Farmer tends to his crop.
By Kellie Pantekoek on December 02, 2019 12:00 PM

There was a 24% increase in farm bankruptcies over the 12-month period ending in September 2019, a recent report by the American Farm Bureau Federation shows. Of the nation's 580 farm bankruptcies during that time, 40% were from farms in the Midwest.

Unfortunately, the financial situation for family farmers will likely get worse before it gets better. Farm debt is expected to reach $416 billion in 2019, which is a record high. And while the U.S. Department of Agriculture expects 2019 farm income to be the highest it has been since 2014, nearly 40% is tied to trade aid and other federal programs, some of which has yet to reach farmers.

The report concludes that farmers' and ranchers' financial woes are the result of a persistent downturn in the farm economy — worsened by the trade war with China — and two years of adverse weather conditions.

The report predicted that trade assistance, farm bill programs, crop insurance, and disaster aid will provide relief to many. But not all farmers will benefit, and it is likely already too late for some already on the verge of bankruptcy.

However, the report also noted that the situation is not as dire as the farm crisis of the 1980s, when farmland value dropped 60% in some areas of the Midwest.

The Chapter 12 Farm Bankruptcy Process

Farm bankruptcies refer to a unique process that was created especially for family farmers. Family farmers facing financial problems have the option to file for debt reorganization under Chapter 12 of the Bankruptcy Code, which allows filers to propose and carry out a plan to repay some or all of their debts.

Chapter 12 was created by Congress in response to the early-1980s farm recession as a way to make it easier for family farmers (and family fishermen) to reorganize their debts in a simple, streamlined way while also being able to keep their land.

Chapter 12 takes away many of the obstacles that people face when trying to reorganize their debts through a Chapter 11 bankruptcy or Chapter 13 bankruptcy. The Chapter 12 process is less expensive and complex than Chapter 11, but still addresses farmers' larger debt loads, unlike Chapter 13.

The repayment plan arranges installment payments to creditors that take place over three to five years. There are criteria that have to be met to qualify for a Chapter 12 debt reorganization, and the criteria depends on whether the filer is an individual (or an individual and spouse) or a corporation or partnership.

The American Farm Bureau Federation report suggests that it could take some time for farms to recover from the current situation, which has been several years in the making. The relief measures in place should help, but farm bankruptcy filings are expected to taper off slowly. 

Consider talking to a bankruptcy attorney if you have questions about Chapter 12 bankruptcy.

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