Dealing with farm debt from this year your advice??

Guys many of you farm and have surly seen some bad years. Here is the question How do you deal with say the fertilizer/chemical bill Tractor and equipment balloon payments??? when things are bad. What will these companies (Farm credit types)do with one?? Where payment is due at such a date. I have a friend in hot water and he is not incoperated. Also when lease/rented land is involved can the owner be dragged in to this??? thanks to all, just want your thoughts.

Not sure how a landlord could be affected very much, he's not the one who ordered or agreed to pay for any seed etc. or got the benefit when a crop was sold other then his rent payments and the (land lease) contract is between him and the tenant NOT the fertilize or seed dealer, gonna be hard for them to collect from him in my opinion. Its like any other debt, the dealer can go after the purchaser and his assetts to collect, but they cant get blood from a turnip as they say.

Best wishes

John T

Tell him to talk directly to the lenders & creditors - and tell everyone the same story with how much that he owes everyone and when he thinks that he can make full or partial payment. The worst thing that he can do is avoid talking directly to them. Some individuals will work with him and some will say "NO". For the individual that says "NO", go over his head to someone higher up.

When someone was late with a payment I would go talk to them and find out their total financial status. Then it would be my call to recommend to the credit manager that the company continue until the borrower could make payment - or recommend re-possession, or take legal action. If the company waited, there would be a "late payment penalty charge".

The trouble is, we are still in the good years.....

It will only be downhill for your friend.

The 1980's have begun again.....

Sorry to hear that.

Everyone gets hurt.

Paul

As far as the landlord question is concerned if it is truly just a rental or lease situation then the landlord would not be responsible. Now if it is more complex such as crops done on shares, storage of crops on the landlord's property, or the landlord has signed as a co-signor to a note that opens the door to possible legal action.
I can appreciate the position the friend is in. Sometimes with good prices you can have a poor crop or have trouble getting it harvested. I've lost soybeans to hail before but the yield did not drop to the point of crop insurance kicking in.

JT Thank you: but as of late there seems to be a "go after the landowner" if Carpenter, construction or outher outfit stiff's its creditor. Here is an example a fellow had some logs sawed buy a protable sawmill, that he cut on land of another. He did not pay the sawmilling fee. So you guessed it landowner was in court too facing a lien!!!!!

And vice versa - the leasing farmer can be hit from the landlord. The neighbor is in that now. She rents a farm with marginal ground. Rents it from a longtime acquaintance. She got grain money from the coop and it seems there was money removed. Her landlord had not paid his part of the fertilizer bill from last fall. They rolled it into hers. Better yet, the coop from the next town over did the same thing one week later. It seems that he did the same thing there. She's big enough to absorb it, but now she has to pester a deadbeat.

I will go without groceries to get those bills paid. Knock on wood, I have never had a situation that didn't work out, but it is getting tougher. It helps to have someone else in the house with income off the farm.

I feel for your friend. I think that most of us can say that his situation is one of our greatest fears. Farmers are the biggest optimists with a pessimistic attitude.

Jocco: Your friend should start talking to the creditor NOW. The earlier they know of a problem the more likely they will be to work things out. Now that being said he needs to go talk to two people BEFORE he talks to anyone about this issue. Those two people would be a good tax person and a good local lawyer that deals in bankruptcy an related issues. Your friend needs to know exactly what the law says in HIS state. The reason for the tax person is that debt write offs and other shortages can turn into taxable income for your friend.

Have a good friend that went under in the 1980s. HE got everyone to work with him and there was debt wrote off. That write off sunk him. The IRS counted that write off as taxable income. He was hit with a $50,000 tax bill. HE was trying he best not to have to declare bankruptcy and it cost him big time in taxes. If the write off had been under a chapter 13 farm reorganization the tax issues would have been way different.

The big issue your friends needs to really keep on top of is who has a lien on what. Some states give landlords an automatic crop lien for rent amounts some do not. The ones that do not put the landlord behind all the secured creditors.

For equipment he may have two creditors on a piece of equipment. Lets say he bought a tractor and financed it with John Deere credit. They will have a lien on the tractor for the purchase amount less any payments made. Then the lender that loaned him operating money would have a blanket lien on all of the equity left after the first lien holder. This blanket lien may not even have all of the equipment listed. This has got many guys in trouble when they try to sell equipment for cash flow. If he has a blanket lien with a lender, that lien is on everything he owns other than some limited personal property like dishes and furniture. I have been to auctions in the 1960s where the washer and dryer would be sold because they where considered "equipment". The laws have changed since then but if he has some high dollar personal stuff, like a bunch of guns, they can be gone after a creditor gets a default judgment against him.


I wish him well but if he is mainly a grain farmer then he is going to have a rough time because the grain farmers have made record profits the last few years. If he has troubles now then he will never make it in more normal times. If he is a livestock guy he needs to face the reality that there is very little profit in livestock right now unless you are largely debt free. So any debt he has will be hard to pay off even if feed prices drop some. There are rarely windfall profits, like the grain guys got a few years ago, in the livestock business.

I think lenders will not be as flexible as they where in the late 1980s and early 1990s. The bank regulations have gotten stricter after the housing bubble drop. Also there is little public sympathy for farmers right now. The average blue collar guy is just treading water and he sees Government payments going to farmers that are getting record high grain prices. There will not be bail outs like the 1980s saw.

Your friend's assets should still have high value based on land and equipment values. He should maybe think about liquidating everything and starting over. There are going to be turbulent times in the next few years as production costs have to re-adjust to cheaper grain prices. There are going to be a bunch of guys lose their shirts on the cash grain farming. The income will drop much faster than the inputs do. The farmer will be the one that gets squeezed in the middle.

If this all started with a bad year, where was his crop insurance?

The amount of money it takes to grow a crop now a days is outrageous.

I would have been in some financial trouble myself last year if not for insurance. Only raised half a crop cause of the drought last year.

I finally got back some of the money I have paid the insurance company the last 30 years.

They are still ahead of me though.

Gary

Another sneakie the IRS has, that I found out about the hard way.

Say your friend sells a piece of unneeded equipment to help with cash flow. If he's depreciated it for tax purposes, the IRS is going to want the depreciation back. It's called "recapture".

When I quit farming, I sold an 856 Farmall I'd depreciated for nine years on a ten year depreciation schedule. By the time the IRS recaptured the depreciation, the bottom line was I could have kept the tractor and broken even.

The lender can try to go after the landowner is it's a crop share lease. A few years ago we had a neighbor who forged several crop share leases with neighboring landowners without them knowing it and then forged the land owner's names on these leases. He took these forged leases to a bank an hour's drive away and borrowed money for his share of the crop on the acres listed on the fake leases. When he disappeared and didn't pay off the notes the bank went after the landowners who knew NOTHING about this. I took awhile to clear the landowners and a loan officer at that bank isn't working there anymore. Jim

Probably more than a one year problem. He might have more corn acres than he should have based on returns or lack of over a five year span. A newbie here went very heavy on corn acres on ground that is well known to being marginal. His crops also look marginal at best due to all the rain we have had. The same newbie has twisted his father's tail to purchase next to new combine with 12 row head and flex table. People can laugh at me for being bean heavy in my rotation but I always have money left after expenses and maintain fertility. Also, I wanted to upgrade to a late 6620 but did not find what I was looking for so the current 6620 is getting a minor rebuild. I want to be a factor in the land market and un-necessarily enriching the fertilizer and equipment people were not helping reaching that goal.

Yeah the legal doctine which allows a creditor to go after an innocent person at times is called "The Theory of Unjust Enrichment". Say a contractor made a mistake and installed a roof at the wrong address so the homeowner refuses to pay. The contractor argues the homeowner still derived the benefit of a new roof so its not fair he still dont have to pay and the Courts have bought that argument....

In the case at hand, the fertilize dealer could argue the landowner derived benefit of improved fertility so should bear some of the cost, but thats not the sure winner the above example is in court. The landowner likely still prevails cuz there was no "privity of contract"

John T Country Lawywer