Report-Chapter 12 on Rise01/23/2018
More farmers likely will be filing Chapter 12 bankruptcy in 2018, as they continue to struggle with costs of production exceeding commodity prices, ag lender CoBank said in a new report.
The CoBank report, “Forces that will shape the U.S. rural economy in 2018,” said commodity price depression from surpluses around the world will make for another belt-tightening year for farmers who will continue to see working capital diminish.
As a result, CoBank said, more producers are likely to turn to Chapter 12.
“Farmer solvency is an increasing concern in some regions,” the report said.
“Wheat and dairy producers are among the hardest hit in this down cycle, as evidenced by an increase in Chapter 12 bankruptcy filings in Kansas and Wisconsin. Chapter 12 bankruptcies, which last year reached the highest level since 2012, are expected to accelerate in 2018 in the absence of a major upward correction in farm gate prices.”
The number of Chapter 12 filings has been on the rise since 2014, according to CoBank. There were about 380 filings in 2014. That number spiked to just more than 500 in 2017, according to the report.
Joseph A. Peiffer, an agriculture bankruptcy attorney based in Cedar Rapids, Iowa, told DTN he too expects to see more farmers filing for Chapter 12.
Chapter 12 is designed specifically for farmers with regular annual income and allows them to stop debt collection and establish repayment plans of three to five years with creditors. The law also allows farmers to restructure debt without forming creditors’ committees.
“I agree that there will be numerous Chapter 12 filed this year,” he said. “Chapter 12 can be an effective tool for farmers to use. Unfortunately, now, if the proceeds from crops are not sufficient to pay the cost of production in full, the farmer loses money. If the farmer loses money, the farmer does not have sufficient money to service debt.”
Peiffer said the current farm crisis is different than in the 1980s. Back then, the price of land and rent dropped, so farmers could cover production costs, feed their families and maintain a cash flow.
“Today, the price of land has not dropped nearly far enough that the farmer can pay for it,” he said. “Remember, the costs of production are not being covered.”
Peiffer said Chapter 12 is helpful for farmers needing to sell land, machinery and breeding stock and incurring taxes. Provisions signed into law on Oct. 26, 2017, allow farmers to de-prioritize taxes.
The report, “The Year Ahead: Forces that Will Shape the U.S. Rural Economy in 2018” is available at CoBank.com.
Source: Todd Neeley, DTN