Skilled and Reputable Counsel In:
Chapter 12 Bankruptcy
When facing financial difficulties, farmers owe it to themselves to consider options provided under the United States Bankruptcy Code—especially Chapter 12 bankruptcy.
Farm Debt Workouts
The potential of a Chapter 12 bankruptcy can encourage farmers and lenders to resolve or “work out” delinquent debts through an out-of-court, negotiated settlement.
Agricultural mediation allows farmers and creditors to solve their disputes through discussion and agreement, instead of having the outcome imposed by a court.
Chapter 12 Bankruptcy
Decisions are best made after careful evaluation of all options. When facing financial difficulties, farmers owe it to themselves to consider options provided under the United States Bankruptcy Code—especially Chapter 12 bankruptcy.
Chapter 12 bankruptcy is designed specifically for family farmers with debts that do not exceed $10,000,000. In Chapter 12, farmers normally retain possession of property and continue operations under bankruptcy court protection and oversight by a Chapter 12 trustee. Individuals, corporations, partnerships, and LLCs can file for Chapter 12 bankruptcy, subject to eligibility requirements.
Kansas farmers and ranchers can benefit from Chapter 12 bankruptcy to restructure debts, reorganize the farming operation, downsize by selling assets and shedding burdensome leases, transition the operation or wind up through orderly liquidation. No matter the goal, Chapter 12 provides unique advantages and flexibility for farmers and ranchers.
Immediately after filing Chapter 12, the automatic stay of bankruptcy protects farmers and their property from creditor actions, including lawsuits, foreclosures, and garnishments. The automatic stay provides breathing room to evaluate options and formulate a Chapter 12 plan of reorganization, which must be filed within 90 days after the case is filed.
Chapter 12 bankruptcy features favorable tax provisions created especially for farmers and ranchers. Outside of Chapter 12, agricultural restructurings are often inherently limited by tax consequences. Farming operations commonly involve assets with a low tax basis, such as long-held land interests or depreciated farm equipment, which would trigger significant tax bills if sold.
Utilizing provisions exclusive to Chapter 12, it may be possible for farmers to sell assets used in the farming operation without full payment of the taxes resulting from the sale. The unpaid tax may be discharged after the successful completion of the Chapter 12 plan. This lifts a substantial barrier to reorganization and provides farmers with a strategic opportunity to restructure, downsize or wind up their farming operations in a more tax-efficient manner.
At the core of his practice, Eric Lomas applies his understanding of agriculture and bankruptcy by representing Kansas farmers and ranchers in Chapter 12. According to circumstances, Eric also assists farmers with bankruptcy cases under Chapter 7, Chapter 11, and Chapter 13.
Farm Debt Workouts
Farmers and ranchers may benefit from the powerful tools available in Chapter 12 without filing bankruptcy. The potential of a Chapter 12 bankruptcy can encourage farmers and lenders to reach a negotiated settlement outside of court as to how a delinquent debt can be resolved or “worked out.” If feasible, a workout agreement may resolve problems without foreclosure or bankruptcy.
Among other things, an out of court workout between agricultural borrowers and creditors may result in restructured obligations, changed interest rates, extended repayment terms, modifications to collateral, and agreements related to ongoing operations or asset sales.
Eric Lomas evaluates and clearly explains his clients’ bankruptcy options and non-bankruptcy alternatives, so these options may be considered concurrently during the course of negotiations. With this information, farmers and ranchers are empowered to make educated decisions throughout workout discussions.
Agricultural mediation is a dispute resolution process for farmers and ranchers to address legal or financial matters impacting their operations. K-State Research and Extension facilitates agricultural mediation through Kansas Agricultural Mediation Services, appointing a third-party mediator to foster a constructive dialogue between farmers and creditors. During the confidential mediation process, the mediator helps parties to identify potential options and solutions to their dispute.
Mediation encourages parties to communicate and interact in a setting that is less adversarial than a court proceeding. This may help preserve debtor-creditor relationships essential to ongoing farming operations. Mediation is less formal and may also be less time-consuming and costly than litigating in the courts.
Mediation can be requested by any agricultural borrower or creditor. It may help resolve a vast array of agricultural issues that may involve banks, cooperatives, suppliers, implement dealers, Farm Credit Services (“FCS”) institutions, the U.S. Department of Agriculture (the “USDA”) and the USDA’s Farm Service Agency (“FSA”). The flexible structure of mediation allows the parties to develop their own solutions through discussion and agreement, instead of having the outcome imposed by a court.
Eric Lomas lends his knowledge of agricultural law and farm bankruptcy to inform clients during the mediation process. With Eric as part of a mediation team, Kansas farmers and ranchers engage in the mediation process from a position of knowledge and with realistic expectations and strategies to address their dispute.