Joe Peiffer Discusses Cash Flows on the Big Show
Doug Cooper: Joe Peiffer is a bankruptcy lawyer with Ag & Business Legal Strategies in Cedar Rapids and Joe, we’ve been talking about a number of things and a couple of things slipped through last congress and didn’t get done. One of those was the debt increase on Chapter 12. What’s the latest?
Joe Peiffer: Well, Chapter 12, we’ve been talking about Chapter 12 for a long time and the debt limit in Chapter 12. And the debt limit raised a little bit the first of April. The current debt limit for Chapter is $4,411,400. Strange number because it’s only indexed for inflation. Back from 1986 when it was started at $1,500,000 till now. The last congress, Senator Grassley and Senator Klobuchar from Minnesota introduced a bill called the Family Farmer Relief Act of 2018, that was in December, it didn’t go anywhere. On March 27th of this year they introduced the Family Farmer Relief Act of 2019, S897 and it now has 11 co-sponsors and a companion bill has been introduced in the House, HR2336. HR2336 and S897 would increase the debt limit for Chapter 12 to $10,000,000 and continue the indexing.
I recently heard something on US Farm Report and John Phipps was decrying increasing the debt limit for Chapter 12, saying it doesn’t provide a fresh start and indicating that perhaps whenever a creditor is listed in a bankruptcy, be it a fertilizer supplier or feed supplier, that the price for that goes up for everyone else. Well, there probably is a situation where people do build in a loss, an allowance for bad debt or loss in their cash flows for these companies, however it doesn’t matter whether it’s a Chapter 12 bankruptcy or a Chapter 7 bankruptcy that’s filed, if the debt’s uncollectible, it’s uncollectible and that really is a hollow reason not to allow Chapter 12 to increase the debt limit so that farmers can use Chapter 12 to get a fresh start, including not having the staggering tax bill that many of them are going to have.
It seems right now that we have the never ending trade war and with that trade war going on perhaps farmers are becoming additional collateral damage. I understand the President seeking to ease those losses, but at the same time as he says he’s going to buy product, are we really getting what we need? I don’t know the answer to that, but I do know that a lot of my clients that are in deep trouble will become collateral damage and will need Chapter 12 in order to start over, even if that means a liquidation. Because Chapter 12 now provides the strongest chapter bankruptcy and allows them to start over without a huge tax bill that they would have otherwise.
DC: Joe, you mentioned collateral damage that farmers could be caught in, what are you hearing from farmers, their concerns, their stress level right now?
JP: What I’m hearing is this, we’re still trying to get people financing to get in the field yet this year. That’s normally something we’ve got lined up by the first of March or the 15th of March, at the latest. Not this year. This year we’re still getting calls from people that do not have financing to go to the filed. This is the latest I’ve had in 37 years of practice, of people having trouble getting financing.
DC: Joe, if you haven’t secured financing at this point, isn’t it too late?
JP: The likelihood of getting financing now is very low. We have a couple of companies that I would call second tier lenders that are out there that are making some loans, but they’re very proud of their money, it’s very expensive to get it and the question is are you better off letting somebody else rent the land and letting it go than you are trying to farm it? Which way will you lose less, becomes an operative question for a lot of my clients right now.
DC: Joe, there are reports that the stress level of farmers has increased for a number of reasons. What’s your best advice? What should they do at this point?
JP: Farmers that are under the stress, they’ve planted, they’re wondering what’s going to happen. First off, take care of your mental health. Get the exercise you need, that helps with mental health. Get counseling if you need it. Be big enough to admit you need help. You can’t do it alone. In addition, keep those pencils and computers working, look at your cash flow at all times, especially when you get back in around the first of July or so, you’ve got the final spraying done, look at everything again. See where you are compared to the budget you set forth, move forward and see what changes you need to given the new reality of what you expect your yields to be and what you expect your marketing to be. Be very proactive. You need to be proactive, not reactive.
Hopefully, if you need to make adjustments you can go into your bank and say, “Hey, I need to make some adjustments. Here are the adjustments I plan to make. Are you with me?” And work with your banker on this, so that you can move forward and keep an operation together. These are very stressful times and those who do nothing will be in much worse shape than those who are proactive and looking for alternatives.
DC: Joe Peiffer, a bankruptcy lawyer with Ag & Business Legal Strategies in Cedar Rapids. I’m Doug Cooper on the Big Show.