A Decade of Decisions for Better Debt Management
July 2026 isn’t just a notable birthday for the nation — it also happens to be the 10-year anniversary of when Ag & Business Legal Strategies founder Joe Peiffer opened his own firm specializing in farm and small business debt restructuring, bankruptcy, and related legal representation. And although the decision to leave his previous law firm and strike out on his own was made in relatively short order, coming up with the right name for this new business took more time. On July 1, 2016, Peiffer Law Office, P.C. opened its doors, but in October 2017 it was finally Ag & Business Legal Strategies… or, as a lot of folks refer to it, ABLS. “I worked on figuring out what I wanted my trade name to say,” Peiffer says of the wait. “I wanted people to know more about the firm by its name, as opposed to a person’s name. The ABLS name reflects what we work with here: ag people, business people, and how we help them strategize to figure out their best options, so we can empower them to pursue the best course of action.” If he had to boil down the ABLS mission to an elevator pitch? “We help farmers and small business owners get creditors off their back, preserve their assets, and minimize their taxes.” In 10 years, the mission hasn’t seen any changes, although technology has introduced some into the office. For example, Peiffer is looking into how to safely use artificial intelligence to help the attorneys quickly devise strategies for clients and conduct other research, while also protecting the firm’s and clients’ privacy. With Covid in 2020, ABLS had to learn how to meet with clients and courts at a distance — and keeping these remote options in place even now helps save on some time and travel expenses for both attorneys and clients. Fortunately at the time, ABLS had already switched over to using laptops instead of desktop computers, which made it easy to convert to a remote platform for delivery of legal services. Uncommon solutions A few years into ABLS’s tenure, Peiffer added the tagline: An Uncommon Law Firm. Sure, he wanted something to grab attention and differentiate his firm from others assisting farmers or small businesses. But it was also important that this hook be something true and meaningful. “We spend time learning a person’s business itself, whether it’s a farm or other kind of business,” he explains. “We don’t want to take a case to court until we have a plan of action in place.” As it turns out, each case is unique and there is rarely, if any, opportunity to use the same plan for two different clients. So “uncommon” captures the ABLS approach just about perfectly. An early case for the firm involved a client meeting to discuss options for restructuring farm debt in the millions of dollars. Early on, the farmer admitted to Peiffer he had forged grain contracts before handing them over to his accountant, who then unwittingly relied on those documents in preparing audited financials — which the bank used to decide to extend the farmer’s loan. There was, in fact, no grain to deliver. ABLS brought in an outside attorney to represent the farmer on potential criminal charges so all attorneys could negotiate with the bank to keep him out of prison. There have been many situations in which clients committed major mistakes before consulting with ABLS; not all could be considered criminal. But all must be faced head-on. “The first thing to do is to minimize the creditor’s loss, in order to maximize the client’s chances of staying out of jail where possible,” says Peiffer. “Our strategy is how to put the genie back in the bottle or at least minimize the loss that’s been caused by the mistake.” Debt restructuring and bankruptcy represent the main types of cases ABLS handles. Another significant portion of the caseload is tax planning for farmers looking into succession planning. Peiffer said a common situation is that a farmer transfers their land into a limited liability corporation, or LLC, for tax advantages and corporate liability shield. Unfortunately, when it comes time to bequeath the farm to the next generation, that LLC designation can eliminate the step-up in basis that individuals receive on the assets after death. (319) 363-1641 Advocacy matters too Representing clients is most of what Peiffer has done over the past decade with ABLS, but he’s also kept up with pushing for stronger federal and Iowa state legislation to protect farm and small business debtors — something he’s been passionate about since seeing how the 1980s Farm Crisis left so many producers ruined. These include stronger protections for farmers under Chapter 12, including deprioritizing federal tax liability that used to make it impossible to confirm a Chapter 12 plan of reorganization, as the secured creditor would get all the money while the IRS and state tax authorities had veto power over the confirmation. In many instances, since there was no money to pay the taxes, the farmer’s plan would not be confirmed and the case would be dismissed. He has also helped exempt IRAs from being liquidated to pay debt in bankruptcies. Too, Peiffer spearheaded a change of Iowa law that clarified how information about bankruptcies could be filed with court clerks as a bankruptcy transcript, which incurs a filing fee ($195) instead of paying for certified copies of the bankruptcy filings, then paying a recording fee ($5 a page, for 50 or more pages) so real estate titles can be easily transferred. In many cases, there is land in multiple counties that each require the bankruptcy data to be transferred — his legislative effort has saved many Iowans and their attorneys significant money and time. To do his legislative work, Peiffer has maintained relationships with elected officials in Congress and the state legislature, notably U.S. Senator Chuck Grassley. Just last month Iowa Governor Kim Reynolds signed into law the Uniform Assignment for Benefit
Don’t Wait to See How Harvest Plays Out
By Joseph PeifferFounding Attorney At nearly the halfway mark, 2026 is providing farmers with some of the most challenging economic times they’ve seen in a generation. This is from a combination of lower commodity prices than what they were seeing just a couple or so years ago, to increases in fertilizer, chemical, and other input costs. On the plus side, the One Big Beautiful Bill Act that Congress enacted last year contained safety net mechanisms that increased the statutory reference prices for key crops including corn and soybeans. This means higher ARC and PLC payouts are likely to be triggered. And the USDA is disbursing one-time bridge payments to some growers from a $12 billion fund announced to help offset losses stemming from tariffs President Trump put in place. On the down side, adding to the tariff-related losses and lower commodity prices are 50 percent higher fuel costs and other elevated input expenses because of the Iran war and subsequent difficulty getting products through the Strait of Hormuz. The payments mentioned above are better than nothing, but they’re a bandage — not a solid fix. Farmers would rather have stable, dependable markets for their products, than what they view as handouts. Instead, many are projected to lose money on the corn and soy acres they’ve planted this year. This is leading them to consider hard decisions, which is always better tackled sooner than later. Our office is receiving more calls than at this time last year, from farmers seeking help with debt restructuring or filing for Chapter 12 bankruptcy. I would have expected to hear from more in January or February than since mid-April, but that has not been the case. The first cash rents for the new farmland lease year were due March 1, and if a farmer was going to decide they wanted to trim their expenses or restructure debt for 2026, they had more options in January-February than they now have. Those who were unsure but pressed forward with renting to plant more anyway may have figured they could use their bridge payment to get through this season and then reevaluate after harvest. They were not expecting war nor its effect on expenses. (319) 363-1641 Potential Income Options Farmers who have significant operating capital and/or little to no debt are probably safe to weather 2026 to farm another year. That doesn’t mean they won’t lose money. But what does this year mean for those who don’t have that kind of capital and do have debt? If this is you, what can you do between now and harvest time to protect your financial interests? One of the first steps will be to review planned inputs for this summer. For example: It’s not that growers don’t normally consider this anyway, but 2026 will require even more examination of expenses versus return. If it looks like you’re only going to trade dollars one-for-one, why do it? If you can’t trim expenses enough to meet financial obligations, including loan and other debt payments, you may need to earn more income through an off-farm job, contract work such as harvesting or hauling grain or livestock for others, or finding other ways to add value to your operation. I have a client who has set up a transloading platform at his farm, where he can load crops and other commodities into containers to be shipped for export — this increases the price of his product by 50 cents per bushel. Other exporters have recently begun paying him to use the platform for their products as well. In addition, he recently attracted outside investment into opening a mixing facility to be able to ship specialized product to South Korea — an established mixing facility recently closed, so he took advantage of the brief market vacuum to fill a need. If you are a farmer with sufficient equity and liquidity, and vision, to do something like this right away, it’s certainly something to consider. But if this is not within your means and you don’t have an investor — and it won’t be, for most farmers — perhaps there is another way you can add value to your operation or find a market niche either without such a large investment. What should you be doing? If margins are tight but you are nonetheless making money this year, don’t be afraid to pay the taxes you owe. Borrowing to purchase equipment you don’t need right away, just to claim a large deduction against income and to lower taxes, might hurt you in the long run. The key here is “borrowing” — going into loan debt isn’t necessarily smarter than paying taxes, if you’re going to owe the bank for a while. If you can see that you will struggle this year to make loan payments, talk with your banker now. I can tell you after more than 40 years of this work that the farmer who comes to the bank, acknowledges their problem, and proposes how they can help solve it typically has more luck getting the bank to help them rework the loan than those who put off such a meeting. It’s never great to have the banker come to you after a default, when you had not told them that you would not be able to meet your debt service obligations. Finally, if your financial problems run deeper than one loan, it may be time to analyze operations and think about serious restructuring. Ag & Business Legal Strategies offers enterprise analysis, which reviews your liabilities and assets, revenue and expense streams, and shows you where you are losing and making money so you can decide how to move forward. If after this step you are still unsure how to proceed, our attorneys can help by reviewing options. Whether it is refiguring your operations, or needing to restructure debt or file for bankruptcy, Ag & Business Legal Strategies is dedicated to helping farmers work toward an outcome that is beneficial for their unique situation.
Contract Provisions: When Business Dreams Turn to Nightmares
By Austin PeifferAssociate Attorney Recently I read two quotes that really struck me: “Nobody’s business plan includes bankruptcy,” from attorney Ferd Niemann and, from software entrepreneur and essayist Patrick McKenzie, “Contracts exist to be followed on very bad days.” They’re both accurate, of course. Nobody plans to start a business that ends up in bankruptcy, but many ventures end that way. If your farm or business ends up in bankruptcy, that’s a very bad day—but it’s also one of the main reasons contracts exist. Business owners, farmers included, would benefit from time thinking about these two quotes. Your business plan shouldn’t include bankruptcy, but your contingency plans should. It’s good to consider: I’m going to give this business my all, but what happens if, despite everything, it goes badly? Will I lose my house? Will I lose my investments? Will I be forced into bankruptcy myself? What if my contractual counter-party has a very bad day? Then, start looking at the contracts you’re signing for your business. Banks and other sophisticated parties already know the moving parts behind these two quotes well. That’s why their contracts contain pages of legalese. Many or even most borrowers don’t read that language, since they’re sure the business plan will work and none of the contract’s, “In the event of default,” language will be necessary. That language wasn’t inserted on a whim; the drafter (or the person the drafter copied it from) likely paid a lawyer to research and draft that provision—and it wasn’t out of a concern for that poor, starving lawyer’s income stream. It’s said that safety regulations are written in blood; contract provisions are written in red ink. Somewhere, at some time, someone had a bad day, a contract was enforced, and someone lost money. That contract provision exists to allocate the risk in such a situation and make sure that on certain kinds of bad days, one party or another loses money when the contract is enforced. And if someone else drafted the contract that you signed, you can guess how that risk is likely to be assigned. (319) 363-1641 Don’t let optimism interrupt reality Sometimes contractual obligations are overwhelmingly one-way. For a loan, the lender’s main obligation is to lend money, while the borrower will have numerous ongoing obligations: submitting reports, maintaining capital ratios, and, of course, making payments. Other contracts have more mutual ongoing obligations, such as an employment or supply contract. Those obligations on both sides matter. Many contracts are performed by their terms to the parties’ mutual satisfaction, and the default terms are never activated. With others, eventually, someone is going to have a very bad day. Whether it results in bankruptcy or something else, things will not go to plan, and sometimes the parties can’t reach a mutually agreeable resolution. That’s when those oft-neglected default provisions matter. Business owners, particularly farmers, are optimistic: Tomorrow will be better than today. Things will work out. This counter-party would never mistreat me. It makes sense—if you spend all your time worrying about what could go wrong, you’ll never have time to run your business and make money. But never worrying about the consequences, if things go wrong, is dangerous. Take some time to think through what kinds of very bad days might happen—whether to you or your contractual counter-party—and what would happen under the contract on those kinds of very bad days. Can you live with that? If not, think about how to address it. If you need help with the particulars of making a plan, or consulting on the legal provisions of a specific contract, Ag & Business Legal Strategies is here to help. An instructive case study One of our clients had a series of very bad days. They were involved in business ventures that went sour when economic fortunes changed, and their business partner filed bankruptcy. Many contracts were enforced against our client. Fortunately, they thought ahead to seek our legal advice, and planned how to protect themselves. Make no mistake—those days were very bad indeed for the client. They lost investments and business opportunities. But because they planned ahead and didn’t wait to seek legal assistance, the damage was isolated and limited compared to how it could have turned out. Too many people don’t think about very bad days until they’re already happening. When clients come to us early enough, we can do a lot more to prepare and position them for the best possible outcome. We can’t prevent all bad days from happening, and we can’t prevent painful contractual consequences when they do happen. But if we have time to act, we can often help minimize the extent of their consequences. Don’t face very bad days alone—reach out to us sooner than later, for your best outcome. (319) 363-1641 At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our team will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow, when it may be too late.
Attorney Joe Peiffer Featured in National Ag Media
Founding Attorney Joseph Peiffer continues to expand his media presence, sharing crucial insights to help farmers and agricultural businesses prepare for the financial challenges ahead. As noted in our previous update, Ag & Business Legal Strategies (ABLS) has been actively featured in agricultural news outlets, offering guidance on debt restructuring, bankruptcy concerns, and long-term financial planning for producers across Iowa, Illinois, and Missouri. Interview with American Farmland Owner’s David Price Joe recently joined American Farmland Owner’s host David Price for a timely conversation about the difficult financial decisions many farmers may face in the coming year. The interview explores rising operational costs, tightening credit, and strategies producers can use to stay ahead of potential financial strain. Watch the full interview and read the complete article here. Joe Peiffer Featured on RFD-TV News Joe was also featured on RFD-TV News, where he discussed key considerations surrounding 2026 operating lines of credit. During the segment, he highlighted the initial steps farmers should take now to strengthen their financial position for next year—along with practical tips to improve approval odds with their lenders. View Joe’s full RFD-TV appearance and article at RFDTV.com. More Media Coverage Coming Soon Stay tuned for additional news features and interviews from Joe Peiffer and the ABLS team. We remain committed to advocating for farmers, empowering them with the knowledge and strategies they need to navigate uncertain financial seasons. If you or someone you know is facing financial pressures—or simply wants to build a proactive plan—contact Ag & Business Legal Strategies today. Our team can help you understand your options and create a clear path forward. (319) 363-1641
Our Strategies in the Headlines
By Joseph Peiffer, Founding Attorney Nearly 10 years ago, after 30 years of rural-focused practice with other firms, I founded Ag & Business Legal Strategies as a practice focused on advocating for the legal and financial interests of Iowa, Illinois, and now Missouri farmers and other small business owners facing debt restructuring or bankruptcy. This year, in the wake of more mainstream news focus on the farm economy, we at ABLS have seen a sharp increase in our efforts to provide news media with information and analysis about farm bankruptcy, financial planning, and more. Associate Attorney Austin Peiffer and I have provided multiple interviews over the past several months both to agricultural media—geared to a farmer and agribusiness audience—and to general news media that are trying to help the non-farming public understand more about agriculture. Here is a sampling of the 2025 news coverage featuring ABLS insights: We have more notable interviews to come, all with an eye toward keeping the public, as well as the farming and agribusiness communities, informed of financial and related legal factors affecting agriculture’s bottom line and future plans. If you are dealing with worry or uncertainty about debt, your financial health, or legal issues related to these, don’t wait to act—reach out for a discussion and plan of action NOW. Help yourself with the holiday gift of peace of mind! (319) 363-1641 At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our team will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow, when it may be too late.
Bankruptcy Can Be A Vital Tool
Last week, in an article by Joe Mahon of the Federal Reserve Bank of Minneapolis, attorney Joe Peiffer shared valuable insight into the financial state of Iowa farmers. He also highlighted some potentially troubling issues on the horizon. The main concern Joe raised involves farmers’ borrowing habits. He explained, “…so what they’re doing is that they’re borrowing money on the land,” and as a result, “…increase the amount of payments we’re going to have to make next year.” Refinancing like this does kick the can down the road, but only pushes off addressing the underlying issues farmers face. Pressure is building for these farmers, and the situation may eventually reach a breaking point. Fortunately for them, farmers can currently restructure their debt thanks to the value of their land. Land is a finite resource and will likely retain its value. However, other factors—like declining soil quality—could put that lifeline at risk. It’s wise to have a backup plan. This “ace up your sleeve” could help farmers avoid disaster and start climbing out of debt. While some may shy away from it due to societal stigma, bankruptcy—especially Chapter 12—can be a powerful tool when used properly. For more details on Chapter 12 bankruptcy, check out our previous blog posts: Chapter 12: The Farmer’s Ally in Debt Recovery and Chapter 12 Bankruptcy: Is it Right for Me? or call us to discuss your situation at (319) 363-1641.
The Urgency for Risk Management
Earlier this week, attorney Austin J. Peiffer spoke with Erin Anderson from Brownfield Ag News. Their conversation focused on the urgency of risk management, especially as farm bankruptcies continue to rise. As we noted in our blog When it Comes to Farm Debt – Fish or Cut Bait, the data is clear. The Administrative Office of U.S. Courts reported 181 Chapter 12 bankruptcies filed in the first six months of this year. That’s a 57% increase compared to the same period last year. In all of last year, only 216 cases were filed. The trend is climbing—and experts expect even more filings in the year ahead. These numbers matter. They’re a warning sign. As a farmer or business owner, you can’t control the market. But you can control your own financial preparedness. That starts with being organized, covering all your bases, and doing more than just the basics. In the interview, Austin put it plainly: “If all you’re doing is updating your balance sheet at the end of the year, you’re operating in the dark for the year. If you’re funding your farm by rolling debt onto land or equipment, you might not see year after year your farm is losing money.” The message is simple: be prepared. You might be asking yourself: If so, you’re not alone. Many of our clients come to us with the same concerns. And that’s where Ag & Business Legal Strategies comes in. We’ve helped farmers and business owners manage risk, reorganize debt, and plan ahead—so they can keep farming and running their operations. Don’t wait. Reach out today. We’re here to help.
When it Comes to Farm Debt – Fish or Cut Bait
Of all the services we provide for farmers here at Ag & Business Legal Strategies, maybe the most important comes first: Helping you honestly assess your situation. Earlier this month several articles and editorials came out of a meeting Arkansas farmers had with their Congressional delegation, requesting federal assistance to save their farms. This is far from the first news of the year indicating rising financial troubles for farmers stemming from several contributing factors: continuing low commodity prices, tariffs and other trade challenges impacting global demand for U.S. agricultural goods, higher input costs, and weather events. Farm bankruptcies (Chapter 12) are up sharply in 2025: There is no shame in filing a bankruptcy if debt reorganization or other measures are no longer sufficient to address your farm’s issues. If fear is holding you back, keep in mind that bankruptcy doesn’t necessarily mean giving up your land or livelihood. Bankruptcy provides an opportunity to force a restructuring of farm debts if the farmer can satisfy the requirements of the bankruptcy code. And the sooner you act, the better your chances are of reorganizing instead of liquidating, or even avoiding bankruptcy altogether. If you are not to the point of considering bankruptcy, but still have worries about your farm’s financial situation, it is better to face difficult decisions and take action now—not later. Indecision is a decision to allow others to make decisions for you. Waiting too long means your bank, your landlord, your vendors, and other people’s attorneys will be calling the shots for you. We want to help you determine your own path as much as possible. How farm history matters Even if your farm or ag business is thriving, it’s worth examining if this is a solid streak or simply a good year. For that reason, every farmer and their bookkeeper should set aside time to review the farm’s finances several times a year. Since harvest is underway and the end of the year will be here before we know it, this is as great a time as any! While quick cash seems an attractive option for desperate times because it’s immediately available and the creditor doesn’t require collateral, the tradeoff is immediate fees and, if not paid back within a short time, compounding interest beyond a normal person’s ability to repay. You can read more of our advice on MCA pitfalls, and better alternatives, here. If you need help assessing your farm’s financial situation, Ag & Business Legal Strategies offers enterprise analysis. This examines the individual parts making up your farm or ag business to show you how each is contributing to profit and loss. Find out more about how this planning tool can save you lots of future time and trouble here. (319) 363-1641 Cash isn’t necessarily financial health Even if you have a positive bank balance, that should not be your only metric for financial stability. Cash on hand doesn’t always indicate profitability, which is tied to management decisions you’ve made that generate income, such as the return on new investment for crops or livestock production. If your positive balance is largely from non-production activities—say, the sale of capital assets (land or equipment, for instance), borrowing funds, or an inheritance payout—you didn’t generate profit. This is important because profit has the possibility of being sustainable, or repeatable. Unless you’ve won a tremendous lottery or your last name is Buffett or Gates, you probably can’t rely on capital gains or a one-time payment as future income. This also applies to cash from refinancing or selling a capital asset, such as taking out a second mortgage. Borrowing and pledging intermediate or long-term assets to make your current situation positive only increases loan payments in future years, further decreasing your ability to cash-flow your operations. We’ve written about profitability versus cash-on-hand in the blog before, which you can find here. The only failure is avoidance This has been a tough year on many farmers, not just in the upper Midwest. With lower commodity prices and higher costs, even if the past few years have been boom, you could be facing difficulties this year in paying all your creditors on time. Whether it’s rent, a bank loan repayment, or what you owe vendors, you need to know who has first security interest in your crops and other farm products so you can structure payments to creditors. In many instances, there will be more claims against the crops and other farm products than the cash from selling those assets. This is another topic we tackled previously, about this time last year. You can read more about collateral, liens, the danger of selling collateral without authorization to pay debts, and how our attorneys can help with negotiations here. If the above is the situation you believe you’ll find yourself in post-harvest, it is time to evaluate your options NOW so you can be proactive in addressing deficits. Ag & Business Legal Strategies has been helping farmers with this problem for many years. One of the reasons we started this blog was to help farmers and small business owners better understand not only the options available to address their financial and legal problems, but how imperative it is to seek assistance as soon as they realize they have a problem. You may have heard that failure to prepare is preparing to fail. We say that failure to make a decision IS a decision—to let others decide for you. Farm debt not dealt with in a timely manner leads to consequences that can range from bad to catastrophic, including added default interest, legal action, seizure of property, and possibly imprisonment for farmers who sell collateral without authorization and do not pay the secured creditor. The earlier you act, the better chance you have to maintain control of decisions over your own future. (319) 363-1641 At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our team will help you create and execute
Austin Peiffer Selected to Participate in National Conference of Bankruptcy Judges Appellate Advocacy Skills Workshop
Media Contact: Allison Miller, allison@blnkpg.com or 317.966.1339 HIAWATHA, Iowa (July 22, 2024) — Just 16 bankruptcy attorneys from across the nation will participate in the National Conference of Bankruptcy Judges’ (NCBJ) Appellate Advocacy Skills Workshop this fall. Among them is Austin Peiffer, Associate Attorney with Ag & Business Legal Strategies (ABLS). The NCBJ’s Annual Meeting September 18-20, which includes this Workshop, provides a variety of high-quality educational programs for attorneys and other legal professionals, featuring judges, academics and other experts addressing compelling bankruptcy issues. It will take place in Seattle, Wash. The Appellate Skills Workshop will focus on a hypothetical appeals case, requiring the eight 2-person attorney teams to present oral and written arguments before judges. This will be followed by meetings with one or more of the judges for detailed discussion and feedback. Paired with the networking and knowledge the 16 attorneys are sharing with one another, this is an exclusive opportunity to strengthen and inform their ongoing practice in bankruptcy law. Peiffer, who joined ABLS in 2020 and is licensed to practice in both Iowa and Missouri, previously clerked for the Honorable A. Benjamin Goldgar, Chief Judge of the United States Bankruptcy Court for the Northern District of Illinois, Chicago. Prior to that, he earned his Juris Doctor from the Washington University School of Law in St. Louis, with a certificate in Business and Corporate Law. While in law school, he worked with its Low-Income Taxpayer Clinic and served as a judicial extern with the Honorable Charles E. Rendlen III of the U.S. Bankruptcy Court for the Eastern District of Missouri. He is the American College of Bankruptcy’s 2018 Distinguished Bankruptcy Law Student for the 8th Circuit. “The young attorneys taking part in this Appellate Skills Workshop are among the brightest in the country,” said Joe Peiffer, ABLS lead attorney and founder. “In the past four years, Austin has developed an excellent reputation for hard work and attention to detail. We at ABLS are extremely proud of his selection for this honor, and also of the work he does to help farmers and small business owners with their debt and bankruptcy problems every day.” “I’m honored and grateful to the NCBJ for providing me excellent learning and networking opportunities,” said Austin Peiffer. “I’m excited to visit Seattle, improve my written and oral appellate advocacy skills, learn at the excellent continuing legal education presentations, and connect with judges and my colleagues from across the country. I’m especially excited that one of the issues in the workshop is whether long-term lease obligations count toward bankruptcy eligibility debt limits, which is an issue that is directly relevant both for family farmers considering Chapter 12 bankruptcies and small businesses contemplating Chapter 11 Subchapter V bankruptcies. “I plan to bring these skills and lessons back to Iowa to continue helping ABLS’s clients deal with their bankruptcy and debt restructuring issues,” Peiffer added. The NCBJ’s mission is to promote the interests of U.S. bankruptcy judges to use their expertise on issues of bankruptcy law and procedure to improve administration of the bankruptcy system and to foster scholarship, collegiality and diversity among members of the bankruptcy bench and bar, and to provide opportunities for education and networking in the bankruptcy law community. About Ag & Business Legal Strategies Ag & Business Legal Strategies is an uncommon law firm focused on the intersection of law, agriculture, business and debt restructuring. Founding Attorney Joe Peiffer, who grew up on a hog and dairy farm, started ABLS in 2016 as a champion for family farms and small businesses, providing compassionate counsel on debt restructuring and bankruptcy. ABLS serves clients in Iowa and Illinois. To learn more, visit ablsonline.com or call 844.363.1641.
Chapter 12: The Farmer’s Ally in Debt Recovery
Farmers are special in many ways. John F. Kennedy said, “The farmer is the only man in our economy who has to buy everything he buys at retail—sell everything he sells at wholesale—and pay the freight both ways.” Farmers form the foundation of our nation’s food supply. In recognition of their unique place in our economy (and of their lobbying prowess), farmers have access to specialized tools in bankruptcy that no other debtors have. This starts with Chapter 12 of the Bankruptcy Code. Why Chapter 12? In legal parlance, “chapter” is a shorthand way of referring to a bankruptcy filed under that specific chapter of the Bankruptcy Code. Individuals usually file Chapter 7 (liquidation) or Chapter 13 (repayment plan) bankruptcies. While businesses can liquidate through Chapter 7, they most often reorganize through Chapter 11 bankruptcies. Small businesses can take advantage of Chapter 11 Subchapter V bankruptcies. Chapter 15 bankruptcies are for international companies to file. And family farmers and family fishermen can file under Chapter 12. Chapter 12 has the same basic thrust as other reorganization (Chapter 11 of all varieties) or repayment (Chapter 13) bankruptcies: Paying creditors fairly while allowing the business or individual to escape overwhelming debt loads and hopefully continue being productive members of society. However, Chapter 12—particularly for family farmers—gives overwhelmed debtor options unavailable in other bankruptcy chapters. A full list of these differences is the topic of an hour-long continuing legal education course for lawyers (Ag & Business Legal Strategies attorneys have taught courses like this), so we’ll focus on one near and dear to our hearts: Tax deprioritization. Taking the Bite out of Taxes Benjamin Franklin famously quipped, “In this world nothing can be said to be certain, except death and taxes.” In all chapters of bankruptcy, taxes are granted special “priority” status, meaning they get paid first in a liquidation and must be paid in full in a reorganization or repayment plan. If they are not paid, they are not discharged at the end of the bankruptcy. In contrast, non-priority “general” unsecured claims typically receive pennies on the dollar and are practically always discharged at the end of the case. The problem is that in a typical farm Chapter 12, the debtor has sold or needs to sell farm property to right-size their operation so it is profitable—but those sale proceeds have to pay down the bank and other secured creditors, leaving no money to pay tax bills that are frequently massive. This can force farmers to liquidate instead of reorganizing. Chapter 12 allows family farmers to turn the tables on the tax man. Under Chapter 12 a family farmer can treat the taxes from liquidated farm assets as general unsecured claims (and therefore typically to be paid pennies on the dollar) and discharge any unpaid taxes at the end of the bankruptcy. This can save a Chapter 12 family farm debtor tens or even hundreds of thousands of dollars. How does Ag & Business Legal Strategies know so much about tax deprioritization for family farmers? We regularly file for clients under Chapter 12 and deprioritize their taxes—Ag & Business Legal Strategies filed the first case to use tax deprioritization, in fact, and we’ve helped family farmers deprioritize hundreds of thousands of dollars in taxes. We also often speak and write about Chapter 12 and tax deprioritization. Most of all, our firm’s founder, Joe Peiffer, helped draft the tax deprioritization statutory language, twice—both originally and then again after the Supreme Court found the flaw he had identified in the original language. Here to Help At Ag & Business Legal Strategies we often describe Chapter 12 as the most powerful chapter in the Bankruptcy Code. Tax deprioritization, a high debt limit, and the ability to confirm a reorganization plan without having to persuade creditors to support it are just some of the reasons it deserves that distinction. If you’re a struggling family farmer or know one, reach out to Ag & Business Legal Strategies today. We can help you evaluate your farm business as a whole and, if appropriate, help you file a Chapter 12 bankruptcy, right-size your operation, and deprioritize the taxes from those liquidations. Contact us now—we can do so much more to assist you if we’re brought in early, rather than after everything is falling apart. At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our attorneys and financial strategist will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow.
Protecting Your Pork Assets: Time to Reorganize, or Get Out?
If you’re a swine integrator or producer, chances are high that 2023 has not been kind to you. More integrators are filing for bankruptcy protection or seriously considering it, which puts the producers who grow pigs for them at risk—and, in turn, their employees. Even if you haven’t faced the potential of bankruptcy or debt organization, you’ve likely seen your income take a hit. Various factors are responsible for this, even before the U.S. Supreme Court upheld California’s Proposition 12 last May, in a decision that will be felt across the pork industry for a long time. One integrator Ag & Business Legal Strategies is working with was losing approximately $1 million in income per month earlier in 2023, and will ultimately end up shuttering their 200,000+ head business because they cannot find sufficient funds to continue operations. This loss will cascade down through the 102 producers who supply the integrator, who must each either find a new buyer or go out of business. This is far from an isolated incident; there are much larger integrators losing that much per week. In just one three-week period earlier this year, two sizable integrators in Iowa alone either filed for bankruptcy or liquidated their assets and went out of business. California Law Causes Concern Let’s look just briefly at the impact of Prop 12. It requires that all pork sold in California have a certification that each gestating sow had minimum gestation pen space of 24 square feet. Since California consumes 15% of the nation’s pork production but only contributes 3% of it, this law affects top-producing Midwest states including Iowa, Indiana, and Illinois. Most gestation houses in this region did not comply with that mandate as of May, which means the producers caring for those sows essentially have four choices: get out of the pig-raising business, retrofit their facilities, construct new facilities, or sell only to processors that separate their California pork from their pork for the rest of the country. It may actually be less expensive and simpler to build new than to retrofit! The ramifications of Prop 12, coupled with hog producers trying to stay in business in the short term, are staggering. States with large concentrations of swine production could see economic hits to rival the 1980s farm crisis. Trouble Brewing for Swine Integrators and Others In Iowa alone pigs outnumber people by a factor of more than 7:1, More than 22 million head are distributed through every county in the state. If the swine industry takes a big hit, the impact will be far-reaching and devastating. Loss of their integrator forces a producer to go out of business or find another job if they cannot find another buyer, but it also puts each of their workers out of a job. Then there’s the ripple effect of the producers’ inability to pay off loans for finishing houses, related facilities, and operating loans. This will impact the banks involved, and the loss of these producers affects the whole supply chain—local veterinary practices, feed mills, and more. All of this brings up many questions for swine producers who have taken on debt for the animals, facilities, and labor to supply integrators. Even if an integrator stays in business, they may cut operating costs—likely starting with their least-efficient suppliers. How might this affect you, the producer? How will you make payments on your loans if you cannot find another integrator? If you need to take a lower payment per pig-space from an integrator, how low can you go and still keep the farm going? How long can you afford to feed and care for the animals while you search for a replacement integrator? Where can you sell your pigs if you cannot stay in business? After all, closing a gestation or finishing house is not like shutting down a factory. Finally, if you do exit your business, what do you do about any personal guaranties you may have signed with the bank, putting your own assets up to ensure repayment of business-related loans? It is important to consult with experts who can honestly help you evaluate your situation and move forward with making informed decisions about your own financial future as well as your business’s, whether you are a producer or an integrator. Ag & Business Legal Strategies can provide this kind of legal review and clarity, as well as negotiate with creditors on your behalf; help you file the necessary liens if you are a producer not being paid; and assist with debt restructuring, exiting the business, or filing for bankruptcy—whatever is appropriate. Contact us today to set up a consultation. Don’t stall until it’s too late to plan adequately to protect your assets or your production future. At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our attorneys and financial strategist will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow. Contact us here!
The Limits of FDIC Insurance and Iowa’s Grain Indemnity Fund
Where’s Your Wealth Stored and How Safe Is It? Banks and grain elevators are the pillars of many rural communities. It can seem like they’ve always been there and will always be there. Some grain farmers might have more money in grain at the elevator than they do in the bank. Regardless, the failure of either of those institutions could devastate a family farmer. The protections available to wealth stored in banks and grain elevators vary, and few farmers have experience with either. Silicon Valley Bank Closure and FDIC Insurance The Federal Deposit Insurance Corporation, or FDIC, closed Silicon Valley Bank (SVB) in March 2023. While this closure may have been a passing headline for many Iowa farmers, it had significant implications for people with deposits there. Many of SVB’s customers had deposits that greatly exceeded the FDIC’s $250,000 deposit insurance limit. There were concerns that these depositors’ losses might cause knock-on effects throughout the financial system, disrupting or devastating businesses’ finances. To address this, the FDIC announced it would insure all of SVB’s deposits, even those above the $250,000 limit. To replenish the FDIC’s deposit insurance fund after this and other recent bank failures, the FDIC has announced a special assessment on banks, with larger banks paying more. Even though the FDIC bailed SVB’s uninsured depositors, there’s no guarantee it will do so again. Recent bank failures like SVB, First Republic Bank, and Signature Bank, and concerns about future insurance, have increased interest in managing deposit risk. Many Iowa banks help their customers manage this risk by titling accounts in different names to maximize FDIC insurance coverage. These banks help their customers understand their options, make informed decisions, define their strategies, and mitigate their risks. Global Processing, Inc. Bankruptcy and the Iowa Grain Indemnity Fund Global Processing, Inc. filed bankruptcy in October 2022 and surrendered its grain dealer licenses. While this may have been a passing headline for most of the country, it had significant implications for farmers in Iowa, Illinois, Nebraska, and Minnesota who had sold soybeans to it. Unlike how the FDIC insures banks, there is no nationwide insurance scheme to protect unpaid farmers who sold grain to failed elevators. Instead, in 1986 Iowa created its grain indemnity fund to help protect farmers who lose money from grain dealer failures. Farmers who sold to Global Processing submitted $3.6 million in indemnity claims; however, this fund comes with some significant limitations: The indemnity fund rejected $1.5 million in Global Processing claims. One farmer submitted $800,000 in claims, but only received $60,000. Farmers who took losses are not completely out of luck, but like uninsured depositors of a failed bank, they must wait for the elevator’s assets to be liquidated before they can recover on their remaining claims. Usually those recoveries are 50% or less. The indemnity fund paid farmers $2.1 million for Global Processing claims. This depleted the indemnity fund, like bank payouts depleted the FDIC’s deposit insurance fund. The indemnity fund statute, though, doesn’t allow for the cost of replenishing this fund to be weighted toward the bigger dealers or producers. Funding for the indemnity program comes from assessments on grain dealers. These assessments are levied when the fund drops below a prescribed level, and no assessments have been levied since 1989. The fund now has only ~$250,000 — far below that threshold — so next year, dealers will pay a 0.014¢/bu fee on all purchased grain (this cannot be passed on to sellers), a 0.025¢/bu fee on purchased grain (this may be passed on to sellers), and a warehouse operator fee. These fees aren’t enormous, but they apply across the board, from large grain dealers to small, and even though elevators cannot directly pass the 0.014¢ fee on to sellers (and might not choose to directly pass on the 0.025¢ fee), ultimately farmers or elevator owners will bear these increased operating costs. The Iowa Capital Dispatch has reported the fee is being reinstated on September 1 this year and that the fund has a balance of approximately $380,000. You can read more details of this news story here: https://iowacapitaldispatch.com/2023/08/30/state-grain-fees-will-resume-this-week-to-replenish-indemnity-fund/ Takeaways for Farmers to Protect their Wealth While no financial loss is convenient, significant losses can greatly impact a farmer’s lifestyle, whether they are from a failed bank or a failed grain elevator. Here are some key points farmers should consider to protect their wealth: At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our attorneys and financial strategist will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow. Contact us here!
Defending Against Preference Repayment Demands
Taking a break from the morning’s work, you stop by the mailbox only to find an unfamiliar envelope from some law firm. The letter inside is notification that the XYZ Grain Elevator has filed for Chapter 11 bankruptcy reorganization, and as part of this, you might have to turn over to the court a good chunk of the $50,000 soybean check you received two months ago! Are you legally obligated to return your payment so XYZ’s other creditors can be paid? What are your options, and can you effectively defend your right to keep what you were owed? What is bankruptcy preference? In bankruptcy parlance, a “preference” is receipt of payment or other transfer of assets from a debtor to a creditor that takes place during or shortly in advance of the debtor filing for bankruptcy protection. It’s called that because it appears the debtor (XYZ Grain Elevator) is showing preference to this particular creditor (you) by paying them while leaving other creditors unpaid. It means you are potentially receiving a better payment than the court would be able to distribute among XYZ’s other creditors after liquidation of its assets through the bankruptcy process. A preference, therefore, enhances the preferred creditor’s recovery at the expense of similarly situated creditors. Let’s consider Bill, who decides he’s going to pay half the $50,000 he owes on a used tractor, to get the dealer, ABC Equipment, to stop haranguing him for payment. If Bill pays $25,000 and files for bankruptcy shortly thereafter, ABC Equipment has received 50 cents on the dollar of what it is owed, when the bankruptcy court might later determine all creditors will only be paid 10 cents on the dollar. That is a preferential payment, and the bankruptcy trustee could send ABC a letter demanding it return most of Bill’s $25,000 payment to the court, to be split among other unpaid creditors. Preference recoveries allow the bankruptcy court to “level the playing field” so all creditors get a fair shot at their percentage share of the debtor’s liquidated assets as repayment. Time limits on preference There is a “lookback period” to define what is a preferential payment. For general creditors, it’s within 90 days before the filing for bankruptcy. If Bill pays ABC Equipment $25,000 on June 30 and files on September 10, the trustee could send ABC a demand letter. But it’s not just what day the check was issued. If Bill doesn’t file for bankruptcy until October 30 but ABC waited until August 10 to deposit his check, ABC could still be subject to a demand letter. The 90-day lookback period is extended to one full year for creditors considered to be “insiders,” such as family members up to three degrees removed (up to a third cousin) or partner in a business. Consider the situation with Bill above. Let’s change the situation so that his first cousin, Tom, is actually a co-owner in ABC Equipment. In this case, the bankruptcy trustee could look all the way back to October 30 the previous year for any possible preferential payments. Congress believed “blood is thicker than water,” and that chances are high a debtor will pay their relatives before general unsecured creditors. One additional note on preferential payments: These are not just checks or cash payments, but any transfer of assets to satisfy a debt. For example, if a debtor transfers title to their vacation home to a creditor within the lookback period, the trustee and court could view that as a preferential payment. Mounting a defense No matter what kind of bankruptcy a debtor files—Chapter 7, 11, 12, or 13—the same federal code applies with respect to preferential payments. If you receive a demand letter as a creditor, it is important that you determine whether you have a valid defense against preference repayment. The best course is to consult with an attorney who knows the Bankruptcy Code and how to deal with preference demand. We have represented clients on both sides of preference letters. There are four types of defense a creditor may use against a preference letter. Don’t fear being paid Farmers selling grain or livestock do have some federal and state regulatory protections. The federal Packers & Stockyards Act regulates how quickly livestock and poultry producers must be paid, which is often a solid defense against preference repayment demands. State licensing requirements and grain indemnity funds are typically in place to cover grain elevator defaults. A farmer with these protections might still receive a preference demand letter, but these regulatory protections can help mount a defense. Ag & Business Legal Strategies recommends keeping records on your sales & purchases for your farm or business and tracking when you are paid & if you are not getting paid on time. If you are owed money, keep pursuing payment from a debtor—don’t let the prospect of a preference letter later on keep you from accepting payment. Remember, getting paid for certain with only a possibility of having to pay part of the money back is better than having your whole accounts receivable sitting out there and getting cents on the dollar in a hypothetical bankruptcy. If you receive a preference demand letter from a debtor or trustee, be proactive and reach out to us. Don’t wait—do it right away! At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our attorneys and financial strategist will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow.
From Debt to Deliverance: Wade
Note: This is the final installment of a three-part blog series about ABLS clients and their debt resolution stories. In March and April, we shared the debt restructuring stories of retired and active Iowa farmers Jerry and Deb, and Paul and Linda, respectively. In this blog, meet a third Iowa farmer: Wade. Wade had his hands full with two business ventures in northern Iowa. He was farming several hundred acres of corn and soybeans, and co-owned a small trucking business. Then, in the space of four years, it all turned sour. From bad to worse As Wade tells it, “I was farming with a business partner at a trucking company. He got himself in a little trouble. I had to buy him out, which wasn’t a bad deal, but then four years after that I ended up going through a divorce. After getting through that, the president of the bank I was working with retired and the loan officer I was working with left – all in about three months. A whole new crew of people came in and the new president wouldn’t work with me.” The banker wanted Wade to liquidate assets to meet his loan payments. Wade began by selling his cattle and some machinery. It wasn’t enough and the bank encouraged Wade to sell his land. Wade was on a path to leaving farming altogether. He didn’t want that to happen. Piecing together a solution We met Wade in 2017 and began piecing together a debt restructuring plan. As with the two farm couples we featured before, Chapter 12 bankruptcy was the best option. The bank fought the February 2018 bankruptcy filing that called for Wade to use cash collateral to plant crops that spring. Ultimately, the bankruptcy plan was confirmed that December. Wade got to keep his remaining machinery and land. He’s running a more efficient operation today, and is coming off the best two years he’s had as a farmer. What’s more, he still runs his trucking company. Wade says he wouldn’t still be farming without the legal help he received from Joe Peiffer and financial advice from Keith Starr. “Joe and Keith made me a way better manager than I was before,” he says. “Now, I’m taking every purchase into consideration and paying cash. It’s nice to have cash in the bank, when before it was always buy it now and pay for it later. Working with Joe and Keith changed my whole perspective.” Time is of the essence “I would recommend any farmer in a situation like mine to talk to them,” Wade says. “They can probably fix things so you don’t have to go the full nine yards (toward exiting farming) like I had to. “My biggest regret is – and I can’t stress it enough – is that I didn’t talk to them sooner.” If farm debt is becoming unmanageable for you, be proactive and reach out to us. Don’t wait – do it today. At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our attorneys and financial strategist will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow.
From Debt to Deliverance: Jerry and Deb
Poor crops. A barn fire. Disabling injuries. New bank managers who don’t know you and are less cooperative than the ones they replaced. Our clients have experienced devastating events like these, and more. Events that threatened to leave them destitute. In this month’s blog, and in April and May, we’ll share stories of three farm families who accumulated stifling debt and came out the other side with financial stability and peace of mind working with us. We begin with Jerry and Deb: Jerry and Deb were living comfortably on their eastern Iowa farm. Between raising Simmental cattle breeding stock, Jerry’s construction business, and Deb’s job at a local community college, all was right with the couple entering the new millennium. Trial by fire, and then some Then came 2002. A barn fire destroyed their feed inventory, and most of the machinery housed inside. Insurance was $60,000 short of replacing what was lost. “It was almost a precursor of what was to come,” Deb says. A 2005 drought hurt Jerry’s hay production, forcing him to dip into winter feed for his cattle. Moving hay one day Jerry was thrown from a four-wheeler, breaking both arms. He recovered just in time to shatter a leg and ankle in 2006 when a scaffold he was standing on gave way. Further pain arrived in 2008 when the farm economy cratered. The couple rapidly accumulated hundreds of thousands of dollars of debt. Their bank demanded loan payments – money Jerry and Deb didn’t have. Foreclosure loomed large. “In 2006 I felt we could come out of it, so we kept plugging away,” Jerry says. “Then 2008 hit and the financial institution matter happened, and I thought that would be the end of us.” An alternate bankruptcy plan Jerry and Deb talked with financial advisors, who recommended they file Chapter 11 bankruptcy. Jerry refused, convinced there was a better way. “I gave Joe Peiffer a call and he said, ‘No, you don’t want to file Chapter 11. You should file Chapter 12,’” Jerry says. “He probably knew the Chapter 12 tax code better than anyone else in Iowa.” Chapter 12 was written in the wake of the farm crisis in the 1980s, but Joe had recently helped rewrite it to give family farmers tax relief. Chapter 12 is specific to family farmers and fisherman and allows them to avoid foreclosure and reorganize their operations or liquidate in a controlled manner. Freedom from debt Over the next 12 months we met several times with the couple and accompanied them to mediation with the bank. Jerry and Deb sold some acreage and more cattle as we began crafting a bankruptcy plan. The Chapter 12 plan was filed in late 2009 and called for complete liquidation. The rest of the farm was auctioned off. “We sold the remaining ground, buildings, the construction equipment, farm equipment, household items and our home, all in one day,” Jerry says. Through Chapter 12 Jerry and Deb were able to discharge $49,741 in 2009 federal and state income taxes for pre-petition sales and approximately $25,000 taxes for the post-petition sales of assets. Today, Jerry and Deb are retired and living in northwest Arkansas, debt- and worry-free. “We would not have the life that we’re leading today if it weren’t for Joe,” Deb says. If farm debt is becoming unmanageable for you, be proactive and reach out to us. Don’t wait – do it today. At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our attorneys and financial strategist will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow.
Waiting to Act Only Exacerbates Financial Problems
Farmer spouses who keep the operation’s books might not be spending long hours in the field or barn, but the time they devote to the financials can just as easily make or break the family business. The spouse manager must be proactive should they see expenses outpacing income. Debt can accumulate rapidly and could, if not addressed promptly, lead to severe financial problems, including bankruptcy and even loss of the farm. Knowing financial crisis warning signs is an essential skill every spouse manager must possess. Of course, this is easier said than done. Accounting challenges Some spouse managers aren’t able to devote the time it takes to thoroughly scrutinize the farm’s budget and bank statements because they have second jobs or assist their farm spouses with the physical farm labor. They also might have limited accounting training and find it difficult to think beyond the next month’s bills. Oftentimes, these time-stretched spouse managers seek a short-term solution to a long-term debt problem. Instead of thinking, “What is my long-term plan to pay off this debt?” they are thinking, “How can we get next year’s crop in the ground? How can we just get by?” At Ag & Business Legal Strategies, we’ve seen a lot of cases where these short-term solutions involve working with lenders who charge high interest rates. The farmers get the money they need now, but the repayment terms are horrendous, leading to even greater financial stress. Resorting to high-interest rate loans is a tell-tale sign that creditors label you as a bad credit risk. In contrast, a good credit rating is a positive sign of financial health. Resorting to expensive financing is one of the warning signs of a financial crisis. Financial crisis warning signs How can a spouse manager know when their farm is approaching a financial crisis? First, look at the farm’s financial statements for the last five years. If you don’t have financial statements, that’s a financial crisis warning sign—how can you know how your farm is doing financially if you don’t even have the information? If you see negative cash flows for three of those years, that’s a financial crisis warning sign. If you see consistent positive cash flows but current liabilities are at or exceeding them, that’s a financial crisis warning sign too. Second, review your tax returns. If you owe taxes you’ll need to take swift action to work out a payment plan. Not being able to pay your taxes is a financial crisis warning sign, and not getting your taxes filed is a red flashing financial crisis warning sign. Finally, are you rolling over vendor financing or input loans for next year, getting cash advances from questionable lenders, or selling or pawning items to get through? These are all financial crisis warning signs too. Many farmers think that if they’ve got money in the bank they’ve had a good year. If that’s your only metric for financial stability, you’re not looking closely enough at your overall financial picture and you may be missing financial crisis warning signs. From bad to worse If farm debt is not dealt with in a timely manner and becomes a financial crisis the consequences can range from bad to catastrophic. First comes default interest. Suddenly your 6% bank loan becomes an 18% interest loan, and your already-too-tight cash flow breaks. Next comes legal action. Creditors will sue to collect from you or seize their collateral, like your crop and machinery. Many banks require their borrowers to maintain bank accounts with them, and if you get behind with them they can seize the money in the bank account, money dedicated to pay your mortgage, go on a vacation, or put food on your family’s table. Finally, once the lawsuits start creditors get judgments against you. That means even creditors that didn’t have liens on your land can get them. Creditors with judgments can then foreclose on the land and the farm can be lost. The time to act is now If a spouse manager spots financial difficulties they need to have a conversation with the farmer spouse sooner rather than later. While these can be tough conversations to have, they are essential to the farm’s continued health. From there, getting professional advice is key. It’s important to know where help and resources are available, including the Iowa State Extension and Ag & Business Legal Strategies. Don’t rely on your banker—their job is to take care of the bank, not to ensure your farm survives and thrives. Once both spouses know and agree a financial crisis is looming the first step is to consider your assets and farm practices. Do you need to sell the livestock? Do you need to downsize the equipment line because you are farming hundreds of acres and not thousands like before? What do you need to do to bring your balance sheet into line? Do you need to take or defend legal actions—filing lawsuits, defending lawsuits, filing bankruptcy—to ensure your farm’s continued survival? Ag & Business Legal Strategies can help you with this analysis. Once you’ve completed this analysis, you, with your advisors’ help, will create a plan to address the impending financial crisis and execute that plan. The two most important things to remember are to act early and not panic. The longer you wait to ask for help and act the bigger the problems get, and the options for solving them get smaller. Waiting won’t make financial problems go away. The good news is that there is usually a way out, and panic is unnecessary. Joe, Ag & Business Legal Strategies’ founder, took farmers through bankruptcy in the ’80s who are thriving today because of it. Act early and don’t let panic freeze you up or drive you to make rash decisions. If your herd came down with a disease you’d call a vet early; if weeds appeared in your crop you’d call a chemical supplier at the first sign. If you see financial crisis warning signs in your farm call the experts at Ag & Business
Purdue Pharma Bankruptcy: A Battle Over Much More Than Dollars and Cents
In 2019, opioid manufacturer Purdue Pharma filed bankruptcy in the Southern District of New York. A large portion of the debt listed on its bankruptcy schedules came from judgments and potential lawsuits against it for its role in the opioid epidemic. Purdue’s owners, the Sackler family, were named in many of those lawsuits and would likely have been named in many more. Within Purdue’s bankruptcy the Sackler family obtained protection from lawsuits against its members for claims related to Purdue Pharma while the bankruptcy was pending, protection that they continue to enjoy to this day. However, this was only the beginning of the protections the Sacklers sought through Purdue’s bankruptcy. As part of a settlement agreement the Sacklers sought releases from liability for any lawsuits related to Purdue Pharma, even after the bankruptcy concluded. The Sacklers wanted what are known as nonconsensual third-party releases—releases from liability for non-debtors (since none of the Sacklers have filed for bankruptcy) on claims by creditors of the bankruptcy debtor without those creditors’ consent. In exchange for their third-party releases the Sacklers agreed to pay billions of dollars into Purdue Pharma’s reorganization plan. Indeed, Purdue Pharma’s reorganization plan was built around the Sacklers’ payments and liability release. Multiple creditors objected to the reorganization plan as it was proposed to the court, but after careful consideration Judge Robert Drain confirmed the plan over those objections in September of 2021. Judge Drain noted that approving the proposed plan, with nonconsensual third-party releases for the Sackler family, seemed to address the needs of all creditors, including the personal injury claimants, as thoroughly as possible considering the financial status of the company. After Judge Drain’s ruling it appeared that any future claimant seeking to recover damages in relation to the opioid epidemic would not have the option to file suit against the Sacklers directly. On Appeal It didn’t take long for confirmation of Purdue’s Chapter 11 plan to be appealed, and in December of 2021, District Court Judge Colleen McMahon pointed a fresh set of eyes at the situation. In her opinion, she lingered on the fact that members of the Sackler family withdrew upwards of $11 billion from Purdue Pharma in advance of the bankruptcy filing and that these same members knew of the pending wave of litigation headed their way. Then, in exchange for paying $4.35 billion into the bankruptcy settlement, the Sackler family and other “Shareholder Released Parties” received the assurance that all future personal injury claims against them would be channeled through the trusts created by the plan. Though on the surface that seemed like a fair treatment, further examination revealed that the trusts created under the plan would not permit payment to parties with claims against any of the Shareholder Released Parties, so those claims were essentially extinguished without any recourse for the claimants. Though the glaring unfairness made the confirmed plan problematic, Judge McMahon’s decision to vacate Judge Drain’s ruling boiled down to whether the bankruptcy court had the statutory authority to grant the non-debtor release in the first place. With respect to that issue, she held that the Bankruptcy Code did not authorize such third-party releases in any way, so regardless of how well Judge Drain thought the reorganization plan would have handled claims, the bankruptcy court could not legally confirm it. Despite having already spent almost three years embroiled in the bankruptcy process, Purdue Pharma and the Sacklers were sent back to the drawing board to find an acceptable reorganization plan that the court could and would confirm. Unintended Consequences Though vacating Judge Drain’s confirmation order seems to avoid allowing responsible parties to evade liability, determining whether this was a net positive is difficult. While waiting for their appeal to be heard in the 2nd Circuit Court of Appeals, Purdue Pharma and members of the Sackler family have been actively engaged in mediation with the objecting creditors to find a settlement that would help to alleviate the opioid crisis. In the meantime, personal injury claimants are playing a different waiting game. The previously confirmed reorganization plan would have allowed victims of the opioid epidemic to start receiving payments from the newly established trusts as early as 2022. However, because the trusts will not be established until a plan is confirmed, those payments will, at the very least, be significantly delayed, if they happen at all. If the parties are ultimately unable to reach a settlement that creates an avenue for claimants to receive payment, victims of the opioid crisis that wish to recover directly from the Sackler family and other Purdue shareholders will be left to fight that battle in the court system. The Sackler family has not filed for bankruptcy. This is one of the complaints about the nonconsensual third-party releases they wanted—they granted the Sacklers protection like they would have received through a bankruptcy (indeed, perhaps even broader than they could have received in a bankruptcy) without subjecting them to the scrutiny bankruptcy entails. However, this is a double-edge sword. Since the Sacklers have not filed bankruptcy they still have ample resources to hire the best and brightest attorneys to litigate the claims against them. Every dollar the Sacklers spend on attorneys is one dollar less that could be paid to opioid victims. Not only would getting a judgment for a personal injury claim against any of the Sacklers be an uphill battle, but enforcing that judgment would be difficult, as the Sacklers have many assets that are not subject to easy collection—for example, the assets are overseas. A judgment without means to enforce it is worth about as much as the paper on which it is printed. The unpleasant reality is that securing the Sacklers’ participation through Purdue Pharma’s bankruptcy reorganization may be the most efficient way to get funds to the families and individuals that have suffered harm as a result of the aggressive marketing of dangerously addictive opioids. A Dangerous Precedent No matter what the final outcome of the Sackler appeal is, it will have
7 + 13 = 10: The CBRA’s Huge Proposals to Change Consumer Bankruptcy
When a consumer is facing bankruptcy, many are given the choice between Chapter 7 and Chapter 13. While some consumers have successful bankruptcies under these chapters, these gloves don’t fit many financially distressed consumers. The Consumer Bankruptcy Reform Act (CBRA) was introduced to streamline consumer bankruptcy and provide more consumers with the opportunity to receive a discharge. The CBRA was introduced as a 188-page bill with many provisions addressing a variety of areas of bankruptcy reform., Most significantly, the bill consolidates Chapter 7 for individuals and Chapter 13 into a new Chapter 10. Chapter 10 Single-Track System Chapter 7 offers consumers the chance to liquidate their non-exempt assets in exchange for a discharge, while Chapter 13 allows a consumer to make payments over the course of a three- to five-year plan. The CBRA would make individuals ineligible for Chapter 7 and would repeal Chapter 13. All individuals with assets worth less than $7.5 million are instead eligible for Chapter 10 bankruptcy. Individuals with assets over $7.5 million would be required to file for Chapter 11, or 12 if eligible. Chapter 10 acts like a hybrid of Chapter 7 and 13 but is meant to completely replace both. Consumer flexibility was one of the bill authors’ primary concerns when drafting the CBRA. While a consumer may have a choice between Chapter 7 and 13, that choice is often meaningless. Chapter 7 does not allow attorney’s fees to be paid through liquidation of estate assets. In effect, this makes many individuals too poor to file for Chapter 7. This pushes consumers to Chapter 13, which is more expensive, and it is less likely the debtor will receive a discharge because many debtor’s plans fail. Moreover, the “means test” is another barrier to Chapter 7 relief that forces consumers into a Chapter 13 plan. The single-track system proposed by the CBRA prevents this bifurcation by putting all consumers in the same Chapter 10 pool. Chapter 10 looks to a debtor’s nonexempt assets and future income simultaneously, instead of the current approach in which Chapter 7 looks at nonexempt assets, and Chapter 13 looks to future disposable income. In a Chapter 10 bankruptcy, the debtor is no longer confronted with the difficult choice of choosing whether to liquidate assets but retain their future income under a Chapter 7 or to keep all their assets while paying their disposable income to creditors throughout a Chapter 13 plan. Significantly, Chapter 10 does not consider a debtor’s expenses like a Chapter 13 does, so a debtor will not have to justify expenses to the bankruptcy court. How to Receive a Discharge Under Chapter 10 Under Chapter 10, a debtor must pay a “minimum payment obligation” equal to the sum of the debtor’s nonexempt assets and a graduated percentage of the debtor’s annual income exceeding 135% of the state median income for a household of the same size. The goal of this minimum payment obligation requirement is to quickly separate debtors who can pay and debtors who cannot. Thus, if a debtor’s minimum payment obligation is zero, the debtor is eligible for an immediate discharge of all dischargeable unsecured debts, much like a Chapter 7 currently, whereas debtors with a non-zero minimum payment obligation will receive a discharge upon confirmation of a repayment plan. If a debtor can pay a minimum payment obligation, they must create a repayment plan to repay their creditors over the course of at least a three-year plan. This plan can be paid by using a combination of future income, exempt assets, and nonexempt assets. Distributions are made according to the same priority levels of 11 U.S.C. § 726, but there is no requirement that priority claims be paid in full. Chapter 10 also gives flexibility to a debtor who cannot pay the minimum payment obligation if they are justifiably excused for “circumstances the debtor cannot reasonably avoid.” Creditors are given some protection by allowing them to request the case be dismissed, but the CBRA removes the judge-created “substantial abuse” standard, allowing a creditor to have a case dismissed only if the debtor engaged in a “manifestly improper use of the bankruptcy system.” It is unclear, what the difference is between these two standards, but it seems clear that the drafters are intentionally rebuking the “substantial abuse” language. The bankruptcy court must confirm any feasible plan that is not proposed in bad faith and covers court fees, so long as the debtor current on their domestic support obligations incurred post-petition. If the plan is proposed without any objections, then it will be confirmed immediately without a hearing. This is another example of the CBRA’s commitment to expediting the bankruptcy process for consumers to reduce costs. One of the most significant changes under Chapter 10, is that a debtor receives a discharge immediately upon plan confirmation. Under Chapter 13, a debtor receives a discharge only after completing their plan, which debtors often fail to do. Chapter 10 drastically changes the supervision of the bankruptcy court over the life of a plan, making the trustee responsible for enforcing the debtor’s bankruptcy obligations. The trustee does this through liens on the debtor’s nonexempt assets. A default on the plan does not revoke the discharge like under Chapter 13, and Chapter 10 provides the debtor with more flexibility to modify their plan because of changing financial conditions. What About Secured Debt? Secured debt is handled under separate “property” and “residence” plans. These plans allow a debtor to change the terms of their obligations but by themselves do not result in a discharge. This allows for a debtor to file a “limited” bankruptcy to address falling behind on a mortgage or car loan without having to bring all the debtor’s other creditors into court. However, a combination of a repayment plan and a property or residence plan can lead to a discharge, and there is still an immediate discharge for a debtor whose minimum payment obligation is zero. Property and residence plans give the debtor the option to adjust interest
Chapter 12 Bankruptcy Rules of Engagement: Farming Operation or Not?
Relief for Farmers Prior to 1986, a debtor intending to reorganize debts had two options for filing for bankruptcy: Chapter 11 or Chapter 13. Unfortunately, neither option was particularly well suited for family farmers. Chapter 11 provided a complicated and expensive route to relief, while Chapter 13 lent itself to reorganizing debt loads much lower than those often carried by farmers. Congress recognized the need for a more streamlined process for “family farmers” and “family fishermen,” and thus, Chapter 12 Bankruptcy was born, combining provisions already included in the Bankruptcy Code into a new structure that allowed farmers to continue owning and operating the farm while repaying all or part of their debts. Along with restrictions regarding the source and amounts of debt and income, the Bankruptcy Code requires that a petitioner be “engaged in a farming operation” to be eligible to file under Chapter 12. In spite of this limitation, farmers who have ceased the physical activity of farming but seek to file under this chapter may still have hope. In re Mongeau, recently decided in the United States Bankruptcy Court for the District of Kansas, provides some guidance. Mongeau Case Study David and Jennifer Mongeau jointly owned and operated a large farming operation where they grew crops and ran cattle. As all too often happens with farming operations, what was once a profitable endeavor became much less so. The Mongeaus made the decision to complete a structured wind-down and began liquidating their farm assets in 2020. By the end of the year, they had ceased the vast majority of their farming activities and sold or otherwise transferred most property and leases to others. Notably, the Mongeaus’ family members purchased much of the real property and equipment, and that family members used the same equipment and the leases David and Jennifer had previously held in the family members’ operations. David and Jennifer continued to provide manual labor in helping on their family members’ farms despite winding down their own operations. On February 1, 2021, the Mongeaus filed their Chapter 12 petition. An unsecured creditor, American AgCredit, moved to dismiss the bankruptcy, claiming that the Mongeaus failed to meet the Code’s definition of being “engaged in a farming operation” and therefore were not entitled to file under Chapter 12. The Bankruptcy Court disagreed. As there was no dispute over the other Chapter 12 eligibility requirements, the Court looked only at whether the debtors were engaged in a farming operation on the date of filing. After discussing tests utilized by other jurisdictions and considering factors proposed by the parties based on relevant case law, the Court weighed five factors to determine whether the Mongeaus were engaged in a farming operation: (1) whether the debtors had abandoned all farming operations at the time of filing; (2) whether there was a plan or intent to continue farming operations in some form; (3) whether the abandonment of farming was a shift to a different type of farming; (4) whether debtors own farm assets such as equipment; and (5) whether the activities are subject to the cyclical risks involved in farming. The outcome of the factor test was determined by looking at the totality of the circumstances on a case-by-case basis. In evaluating the first factor, the Court looked beyond the narrow interpretation proposed by AgCredit and found ample evidence that the Mongeaus’ had not abandoned all farming operations. The debtors’ continued involvement in family members’ farms, care of their daughter’s cattle, and partial ownership of cattle equipment intended to be used in a future smaller scale livestock operation supported the Court’s finding. Beyond that, the Court also gave significant value to the business side of farming, noting that “managing the business elements of a farm are just as much farming as plowing the ground.” David Mongeau was still actively engaged in the business side of farming beyond the date of filing, as he continued to distribute their 2020 farm income to creditors as it came in from various sources. The Court spent less time discussing the other four factors. It evaluated the second and third together and found that the Mongeaus’ testimony regarding their intent to start a smaller-scale cattle operation with their brother, coupled with the concrete evidence provided by their involvement in the family farms and partial ownership of cattle equipment, showed a legitimate intent to continue farming of a different type. The Court looked to the debtors’ current ownership of a pickup, cattle equipment, and funds that arose from the sale of equipment and crops to satisfy the fourth element, and finally, the fact that the Mongeaus were “winding up the results of the risks previously taken” was enough to satisfy the fifth factor. After considering all of the circumstances surrounding the Mongeaus’ situation, the Court found that the Mongeaus were engaged in a farming operation when they filed their Chapter 12 petition, and were therefore eligible to be Chapter 12 debtors. Application Though the Court cautions that this case should not be taken as an endorsement of the Mongeaus’ methods, it does serve as an example of how farmers who have ceased the physical activity of farming may successfully establish that they are “engaged in a farming operation” and, by extension, Chapter 12 eligibility. The Court’s focus on Congress’s intent to help family farmers to continue farming and willingness to consider all facets of farming, not just working the ground or raising animals, leaves room for debtors to prove what activities constitute farming in their operation. As the Court points out, the inclusion of the simple word “farming” in the list of activities that satisfy the definition of “farming operation” allows for consideration of modernization and the changing processes that come along with it. As with any court case, supporting evidence is crucial. To have the best chance at success, a filer attempting to meet their burden of proof in establishing Chapter 12 eligibility after ceasing some or even all physical farming activities should not only be prepared to give testimony regarding their previous
Creditor Attorney Fees in Bankruptcy
In bankruptcy, parties fight over a limited pool of assets while fees diminish what remains in the estate. While most creditors are responsible for paying their own attorneys’ fees, oversecured creditors are entitled to attorney fees from the debtor pursuant to 11 U.S.C. § 506(b) which states: To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim … any reasonable fees … provided for under the agreement or State statute under which such claim arose. 11 U.S.C. § 506(b) https://www.law.cornell.edu/uscode/text/11/506 Section 506(b) establishes three rules applied when the bankruptcy court looks at creditor attorney fees. “To recover attorneys’ fees, a creditor must establish that: (1) it is oversecured in excess of the fees requested, (2) the fees are reasonable; and (3) the agreement giving rise to the claim provides for attorneys’ fees.” In re White, 260 B.R. 870, 880 (B.A.P. 8th Cir. 2001). The most fact-intensive inquiry of this three-pronged test is the reasonableness prong, requiring the court to consider a variety of factors specific to the case at bar that would justify the proposed creditor attorneys’ fees. In re Kurtenbach In re Kurtenbach, a 2020 case in the Northern District of Iowa, presented the bankruptcy court with the issue of whether a creditor’s attorney fees were reasonable in this complicated Chapter 12 case. The court considered factors such as the complexity of the case, the hourly rates charged, whether the services were necessary for the client, whether the attorneys efficiently and competently provided their services, whether billing judgment was exercised, the results obtained, and amounts charged in similar cases. Facts Farm Credit, the oversecured creditor in this case, sought creditor attorneys’ fees amounting to $219,447.67. The debtor objected to these fees, admitting that Farm Credit was eligible for attorneys’ fees under § 506(b) but claiming the amount requested was unreasonable. Farm Credit responded by claiming that the complex case warranted a greater amount of work, especially because of the debtor’s multiple plan proposals. Through the course of the Chapter 12 case, there were four different bankruptcy plans proposed by the debtor. Farm Credit objected to each of them. Additionally, the proposed plans were “a bit out of the ordinary.” Then, confirmation hearings on these proposed plans were rescheduled repeatedly. Ultimately, the case presented far more work for debtor’s counsel and Farm Credit’s counsel than the average Chapter 12 case. Discussion The courts have broad discussion to review attorney fee applications, including those from creditors’ attorneys. The court first looked at the complexity of the case and acknowledged that the case’s complexity supported a claim for a large fee but also said that complexity is not dispositive. The court also recognized that the hourly rate charged by Farm Credit’s attorneys was reasonable. The court then looked to whether the fees were necessary to protect Farm Credit’s interest. Farm Credit sought to recover fees for a motion for relief of stay, and the court determined that this was not necessary for the interests of Farm Credit because Farm Credit’s status as an oversecured creditor made relief of stay highly unlikely. Thus, the court reduced $6,000 worth of fees for services relating to the motion for relief of stay. The bulk of the court’s discussion related to the efficiency of the services and whether billing judgment was exercised. The court found multiple instances of Farm Credit’s attorneys billing for services that did not meet the efficiency requirement. Farm Credit’s attorneys billed for reviewing documents, exhibits, and witness lists each time the debtor proposed a new plan, even though these items were essentially the same for each plan proposal. While the court admitted that there may be additional services that would need to be billed for each proposed plan, the court found that the extent of services rendered seemed far too great in many instances. Moreover, when the court Farm Credit’s attorneys exercised billing judgment, it found multiple instances of duplicative services. The court found examples of attorneys billing for reading, reviewing, drafting, and revising the same documents multiple times. Although the court recognized that diligence is necessary for good lawyering, the court pointed out that diligence must be reasonable. In this case that diligence was not reasonable. Because Farm Credit failed to eliminate duplicative billing entries or explain the confusion surrounding it, the court had to adjust fees accordingly. The court recognized that Farm Credit’s attorneys had produced favorable results for their clients, which weighed in favor of a fee award, and then turned to whether the fees Farm Credit sought could be compared to any similar cases. The court pointed out that the case was unique, and the best comparison would be to compare the fees charged by Farm Credit’s attorneys to the fees charged by debtor’s counsel in this case. This point presents an interesting observation that appears to undergird the opinion. Debtor’s counsel presented the argument that Farm Credit’s attorneys’ fees should not exceed the estimated $160,000 of fees requested by debtor’s counsel in this case. The court recognized that debtor’s counsel’s fee requests were familiar to the court and the court consistently approved them. The court further states, “Debtor’s counsel’s fees provide at least a general benchmark for the amount and value of services required in this unusual case.” The court does not appear to say that counsel for an oversecured creditor can never charge more than debtor’s counsel, but rather, in this case, the court could appropriately compare fees between the oversecured creditor’s counsel and debtor’s counsel to determine reasonableness. This is a clever approach by Chief Bankruptcy Judge Thad Collins because the court was familiar with both firms and the case was so unusual. Critics may claim that this decision penalizes the creditor’s attorneys for being diligent, but this concern is overstated. An oversecured creditor must be able to justify their attorney’s billing to the bankruptcy court just as that