Get Up to Speed: Potential Laws for You, Your Farm, Your Business
Call your Iowa State Senator by February 20 The bulk of our work at Ag & Business Legal Strategies is focused on helping farmers navigate complex court processes in bankruptcy, as well as laws and regulations that affect their livelihood. But our attorneys also devote time and expertise to working with state and federal legislators to try improving laws that govern these, as well. Ultimately, lawmakers serve you, the people. So from time to time, we like to update you on pending or potential legislation that could impact your daily life at some point so that you may reach out to your elected representative and share your opinion. File the first two items in this article under “Needs Attention NOW.” Updating for inflation in Iowa Last year we worked with an Iowa state lawmaker on draft legislation to better assist farmers and other small business owners seeking debt solutions by updating Iowa’s exemption laws for inflation. We explained what that means, and how it would help struggling parties protect more of their property, in this article. That legislation was introduced in the Iowa Senate last month and was assigned to a subcommittee of the Judiciary Committee. Not only would it bring up to date long-overlooked indexing, going forward it would require periodic indexing every three years. The subcommittee has recommended that the main Committee vote Senate File 2054 out to the full Senate for debate and consideration. Here is what’s needed: If the Judiciary Committee does not vote on this by February 20, 2026 (later this week, as of this publication), it will become much more difficult to get the bill to the Senate floor for a vote this year—if at all. If you’re in favor of fair protection for debtors while supporting economic recovery in the debt reorganization/bankruptcy process, contact your State Senator TODAY and ask that the Committee vote on S.F. 2054 by February 20. If you don’t know your Senator, find them here. ABCs of business liquidation In addition to farmers, we also advise small business owners. Section 681 of Iowa Code governs assignment for benefit of creditors, commonly referred to in legal circles as ABC. The concept has been around for centuries, crossing from common law of England to the U.S., and allows a failing business to close efficiently and the owner(s) to maintain credibility by liquidating assets to pay its creditors. This process happens largely outside of court supervision, saving court expenses and potential time delays related to oversight. Used efficiently, ABC lets a business owner transfer its assets to a neutral third party, whose job is to sell them and recover the best prices to pay creditors. When the state enacted its current ABC laws in Iowa Code Chapter 681 more than a century ago, it imposed significant court oversight and bonding requirements. The bond requirement has historically proven onerous and expensive, crippling this tool—in fact, the last case we can find using this was in 1949. Because ABC liquidation can be a more affordable alternative to bankruptcy when a business owner is not trying to reorganize to stay in business, we have been working with Iowa legislators to overhaul this state law. Senate File 2213 would do that, repealing Section 681 and replacing it with more modern, uniform language recently drafted and also under consideration in other states. UPDATE: The Governor signed the final bill, SF 2497, into law on June 2, 2026 As with the above-mentioned S.F. 2054, this bill has been recommended by the Judiciary Committee’s subcommittee for passage, so the full Committee can take it up for consideration. It too must be voted on by February 20, or it may be difficult-to-impossible for the full Senate to vote on this year. Contact your State Senator to request a Committee vote before February 20. Protect farmer safety, legal relief Recent approval of the use of dicamba herbicide by the U.S. Environmental Protection Agency (EPA) puts us in mind of an effort from the past two years, in Iowa, to nullify farmers’ rights to sue for relief if harmed by pesticides. In 2024 and 2025, the Iowa Senate voted twice to approve a bill that stated if the EPA approves registration of a pesticide under the federal Insecticide, Fungicide and Rodenticide Act, that “shall be sufficient to satisfy any requirements for a warning or labeling regarding health or safety” for its use. And twice, the Iowa House refused to make it law. Although we are not aware of any effort yet so far this year to revive the bill, it’s never a bad idea to get out ahead of potential action and let your legislators know that you are not in favor of taking away a farmer’s right to sue for injury from something they may be required to handle on a regular basis. Why it matters: Several years ago, Ag & Business Legal Strategies had a client who grew very sick and nearly died when he was mixing a pesticide and some landed on his skin. It turned out that in the 1980s this chemical had contained a “loud” dye so the user could more easily see if it was applied or spilled, and caused it to sting so the user could wash it off promptly. By the early 2000s, however, the dye and warning sting had been eliminated. The Eighth Circuit Court ruled this elimination a design defect that was an exception to how the EPA had registered the pesticide, and the farmer prevailed. EPA registration of a pesticide is predicated on how well it works for your crops, which has nothing to do with how safe it may be to use. Manufacturers and others will argue lawsuits raise the price or make approval a longer process. We ask: At what price do you really need those chemicals if they’re not going to be safe for everyday handling and exposure? Federal bankruptcy goals Next month, Ag & Business Legal Strategies Founding Attorney Joe Peiffer is headed to Washington, D.C.,
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.
10 Common Mistakes Made by the Financially Desperate — and Why They’re Bad
Earlier this month, we spoke with Brownfield Ag News¹ to encourage farmers to confirm their records are all in order when reaching out to their banks for 2026 operating lines of credit as well as to make informed financial choices for their operations. Although a farmer should keep their balance sheet and cash-flow records updated throughout the year, people do get distracted and busy. If you have not updated these records in a while, don’t put it off longer — pick a time in the next week to sit down and, in the words of Nike, just do it. Our attorneys assist a lot of farmers, so over many years we tend to see a number of the same errors in judgment from new clients. If you are deep in debt or otherwise feeling financially desperate, it is easy to fall into a trap of “surely I can get around the problem by doing this” or “I’ll just do this temporarily, and then I’ll fix it” without realizing your shortcut or “fix” may, in fact, not be legal. These are among the issues we see time and again, not in order of frequency: Of course, the main problem our attorneys see—the one behind all these mistakes—is a farmer not seeking assistance early enough to avoid these or other problems. We’ve said it before, but it bears repeating: While Ag & Business Legal Strategies is certainly qualified and willing to help farmers in legal trouble, we’d rather prevent it in the first place. We have farm experience; we are related to and friends with farmers; and we want every farmer to succeed. The best way for you, the farmer, to keep doing that is to call us for advice as soon as you realize you have a problem, rather than waiting until it has reached (or passed!) a critical tipping point. (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. ¹Brownfield Ag News, “Farmers Should Review Farm Financials Ahead of 2026 Loan Renewal Season.” Nov. 11, 2025.
Don’t Fear the Creditor
Normally, here is where you might find an analogy comparing troubles in farming with some other life situation. And while that is a useful writing tool, the fact is that an analogy doesn’t always capture the real things we need to explain. And reality is that we are seeing a noticeable uptick in financial distress for farmers this year — not just in our own practice, but in farming overall. Corn and soybean prices are still down significantly from their 10-year high earlier this decade. Meanwhile, input costs for crop growers have not decreased at the same rate. Livestock overall is doing better in 2025, especially beef, but there are producers from these sectors also in the middle of bankruptcy proceedings. Stay on top of financial shifts If you planned to harvest corn at 200 bushels/acre and sell for $5/bushel, but you’re seeing only 180 bpa at $4.20, this is of course going to change your plans for the year. Continuing to hope things will improve as you harvest this month is a wonderful thing, but it will not make up lost income. That’s why you need to update your projections and plans as circumstances change. If projections show revenue will be short, there are decisions to make. Do you have enough in savings to pay creditors such as the bank, a landlord, laborers, suppliers, et cetera? If not, can you tap an additional income stream? Maybe you can sell your harvesting services to other growers in the area. And if you do this in Iowa, be sure to perfect a harvester’s lien with the state no later than 10 days after finishing the work, to ensure you are a priority to be paid timely, even if the farmer for whom you’re harvesting gets crossways with their bank). Or maybe you can pick up extra money hauling grain or livestock, driving a truck, packing silage, assisting with farm chores, or doing other temporary labor? Finding additional sources of income will protect the equity you’ve worked so hard to build over the years. If you’re still struggling to meet your obligations, you may be tempted to finance this short-term debt by rolling it into next year’s operating loan or tapping your land’s equity. But remember, these incur additional interest — like rolling a snowball uphill. At some point that debt snowball grows so large that it will roll back over you. Or, let’s say you’ve learned that you can sell grain for more than what you contracted with another party when you grew it. Or, you’re a month behind on rent and the landlord is pressuring you to pay when you also owe the bank a payment — the bank that holds collateral over your grain. These are both situations in which you may be tempted to seek a short-term solution to pay your most pressing debts, at the risk of legal action and penalties. When your farm production is some creditor’s collateral, you need to be very careful and seek sound legal advice. Don’t underestimate negotiation If you took out a bank loan or operating line of credit, that lender usually takes a security interest in every bushel, bale, hundredweight of milk, or animal you produce, meaning it has first dibs if you do not repay the loan on time. There are exceptions, such as if someone has an aforementioned harvester’s lien for doing work on your land or your landlord perfected a landlord’s lien with the state. We wrote about the pitfalls of selling collateral in a “rob Peter to pay Paul” debt-payoff scenario last fall, but it bears repeating: When your farm product is also collateral, you cannot unilaterally decide how to dispose of it or spend the proceeds. In addition to banks, harvesters, and landlords, certain vendors may also hold statutory liens on your crop or livestock. Here at Ag & Business Legal Strategies, we’ve handled many cases in which a farmer liquidated the collateral they had pledged to others as collateral, then needed our assistance when consequences inevitably happened. One farmer sold his grain under another family member’s name so he could use the proceeds to pay off creditors other than the one that had a security interest in the grain. Now he might not be able to discharge his debt to that creditor in a bankruptcy. Even more seriously, both he and the family member could be indicted for defrauding a financial institution — a federal felony — and possibly serve time in a federal penitentiary. In another case, the farmer sealed grain with the government’s Commodity Credit Corporation (CCC). Instead of delivering that grain to an elevator and repaying the sealed loan, he sold it elsewhere to pay bills. Not only did he have to repay the CCC, he also paid a fine and was barred from applying for another CCC sealed grain loan for two years. Yet another farmer created a limited liability corporation to sell his grain and tried to argue since that corporation didn’t owe any debts, it was free to sell the products. In all three of these cases, the collateral holders demanded their share; in fact, even after filing for bankruptcy, the third farmer will owe a six-figure debt that the bankruptcy court cannot discharge. Prepare, don’t react Our attorneys are certainly capable of providing representation for these kinds of cases — but we would rather help producers on the front end avoid fines, judgments, and possibly even jail time. If it seems to be difficult to pay your bank or other creditors in full this season, Ag & Business Legal Strategies can assist in reviewing your options and finding the best solution that does not risk jail time or non-discharged debts if a bankruptcy is necessary. If you have a close relationship with your bank and know you’ll be receiving later income — for example, crop-loss insurance — and you can convince your loan officer to wait, that’s great! If not, we can reach out to your
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
September 1: Deadline to Terminate Renewal of 2026 Farm Leases
If you rent or lease out farm ground, you may already be aware of September 1 as a critical time for notifications in Iowa—but if not, here’s a brief explanation of what you should know. Farmland leases typically renew on March 1 each year, unless the lessor or lessee has expressly notified the other party in writing to terminate the contract, and this must be done no later than September 1 the previous year. If you intend to try to renegotiate lease terms, this is also the time to do that—so you can make an informed decision about whether to terminate and provide your notification by September 1. Earlier this spring, Iowa State University Extension reported that average Iowa cash rental rates are down for the first time since 2019, by about 2.9% this year. This can of course affect your lease negotiations, along with your 2025 harvest and crop revenue prospects and any government payouts if you are the farmer; or land value if you are the landlord. Ag & Business Legal Strategies provides assistance with lease termination notices. For more valuable details about this process, and to contact us for a consultation and a FREE “Farm Lease Negotiation Checklist,” follow the link below!
Trust Breached: A Hidden Estate Planning Risk
It’s important to consider all factors when making out an estate plan. Trusts are a common estate planning tool, and can provide significant value when used properly; however, trusts also lack certain important legal rights that people and corporate entities have, including the right to file bankruptcy. In 2024, Judge Thad Collins, the chief bankruptcy judge for the Northern District of Iowa, decided a case called In re: Vera Welte Testamentary Trust. When Vera Welte died, she left farmland to a trust with her will, naming her son as the beneficiary. The son needed to borrow money and had the trust pledge a mortgage on its land to secure those debts. When the son couldn’t pay those debts, the creditor sued to foreclose the mortgage. In response, the trust filed bankruptcy. Judge Collins was asked to decide whether the trust was eligible to file bankruptcy. The Bankruptcy Code says that, in general, a “person” can file bankruptcy, but then broadly defines “person” to include individuals, partnerships, and corporations. “Corporation,” in turn, is broadly defined to include entities people would generally think of as corporations, but also a “business trust.” Unfortunately, the Bankruptcy Code does not define “business trust.” To fill this void, courts have developed a six-factor test, with the most weight being given to whether the trust was created and maintained for a business purpose. It’s not sufficient for a trust to merely conduct business operations—business operations must be its primary purpose, not a side effect. The problem becomes apparent: A testamentary trust isn’t created or maintained for business purposes. It is created to facilitate the grantor’s estate planning wishes by protecting and preserving the property in the trust for the beneficiary’s benefit. That’s why Judge Collins dismissed the case—since the trust was not created for a business purpose, it was not a business trust and therefore was not eligible to become a bankruptcy debtor. Make Your Wishes Clear After the dismissal, the creditor foreclosed its mortgage and sold the trust’s land at a sheriff’s sale. Vera Welte could have prevented this outcome by prohibiting the trustee from mortgaging the trust’s land to secure other debts, even though most trusts give the trustee broad powers to pledge the trust property to secure debts. The trustee, too, could have prevented this by refusing to sign the mortgage—but perhaps she thought that the son, as the trust’s beneficiary, was only pledging land that was ultimately his, so it was his business if he wanted to do that. If the son had owned the land himself instead of being the trust’s beneficiary, then he could have filed bankruptcy himself and stopped the foreclosure. While there were several opportunities to prevent this outcome, they share a common thread: The testamentary trust. Moreover, while the business purpose test was determinative in Vera Welte, other typical features of estate planning trusts made it difficult for this trust to satisfy some of the other factors in the six-factor business trust test. Trusts are powerful tools. They can reduce taxes, avoid probate, facilitate distribution of complex assets, allow for assets to be distributed to heirs over time or based on conditions, maintain privacy, protect assets from creditors, and avoid will contests. They can serve many functions in an estate plan. But it is essential to also recognize their limits. Nobody plans to experience financial distress, become unable to pay their creditors, and file bankruptcy—but it can happen. In addition to concerns about cost and losing a step-up in basis, property owners and their estate planning attorneys who consider establishing trusts should carefully contemplate the likelihood that the trust will not be eligible to file for bankruptcy if the trust, or its property, becomes subject to debts that cannot be repaid. It may be appropriate to restrict the trustee’s powers to pledge trust assets to secure non-trust debts, set a date certain when the trust’s property will vest in the beneficiary, or use a different tool to accomplish the grantor’s goals. If your estate-planning attorney has recommended setting up a trust for your farm or business property, reach out to knowledgeable staff at Ag & Business Legal Strategies to discuss the bankruptcy implications of doing so. We can help you and your attorney account for this threat to carrying out your last wishes. or Call us at (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. https://www.ablsonline.com/contact/
It’s Farmers Who Suffer the Shortage of Rural Attorneys
Even most attorneys enjoy a good lawyer joke. But there’s nothing funny about the shortage of access to legal representation for rural residents across the United States. And where people cannot find representation, they have a difficult time accessing justice. According to a 2020 survey by the American Bar Association (ABA), there are on average four attorneys per 1,000 people nationwide. If you have a suspicion this isn’t evenly distributed, you’d be right. Think about this: Nationwide, 40% of all counties (and county-equivalents) have less than one lawyer per 1,000 people. Fifty-four counties have no practicing attorneys at all. Earlier this year, while serving on a panel at Washburn University to discuss this shortage and brainstorm recruitment ideas, I met a fellow panelist from northwestern Kansas who is the only lawyer in her county other than its prosecuting attorney. Far from being happy about no competition, she believes the best thing for the county would be for at least one other attorney to set up practice locally. That way, she would not face so many situations in which she has to turn away potential clients because of conflicts of interest from already representing other parties involved. Also, local residents would not always need to travel to another county to hire a lawyer. Representation matters So, why are these “legal deserts” a problem—and why are they a particular obstacle for farmers and small-business owners? Regardless of where they live, everyone deserves access to legal representation and assistance when they need it. Most people hire a lawyer only once or twice in a lifetime for reasons such as divorce, writing a will, mediation, an injury claim, or bankruptcy. But if you’re running a farm or other business, occasions for need of legal assistance are more frequent than for a non-entrepreneur. A business owner works with contracts, business taxes, employees, customers, buyers and sellers, which means bringing or defending potential lawsuits or, sometimes, simply relying on an attorney to negotiate a difficult situation. While large companies typically have the resources to employ attorneys or retain the services of a big law firm, “the little guy” in need of less frequent legal services does not have a staff lawyer. For farmers especially, it is important to have access to lawyers who understand the business of farming, to help their client best navigate complex legal issues as they pertain to agriculture. This includes things like federal farm programs, farm leases and taxes, specialized contracts, ag finance agreements, incorporation papers, farm debt restructuring or bankruptcy, and more. Ag & Business Legal Strategies specializes in representing farmers—and other small-business owners—across Iowa as well as in Illinois and Missouri. Our lawyers and support staff understand the agricultural sector’s needs. We assist many clients beyond our office location, which means we rely on video conferencing in addition to some traveling for in-person meetings and court appearances. After all, the commute for a Zoom meeting is the same no matter where you live! Fortunately, courts accept electronic filing and our staff can assist clients with digitizing any paper documents as needed, allowing capable representation even for clients who live hours away. Need an ag attorney? Understanding the client When an attorney works with ABLS, if they do not already have an ag background like me (my dad was a farmer), I take them to different kinds of local farms so they can learn about cropping and livestock systems. I have even done this with some visiting lawyers. I think it’s critical for a lawyer to develop familiarity with the types of operations they will represent, plus I enjoy helping my colleagues learn the business of farming. Near ABLS’s eastern Iowa offices, legal deserts aren’t as severe as they are in western and northwestern Iowa, but there still aren’t as many attorneys as our state needs. For any profession to flourish somewhere, there must be younger people coming in to replace older professionals as they retire, sell the business, or pass away. But new graduates and other young lawyers in Iowa are moving to larger cities or out of state to work. This isn’t surprising, as many young people want access to more amenities, social networks, and career opportunities than they think rural areas may offer. I found satisfaction practicing law and raising a family in this area because, as a young attorney in the 1980s during the Farm Crisis, I saw where I could really make a difference advocating for farmers facing financial hardship and loss of their land. Even now, there are young attorneys who would like to live in rural areas, but a sense of purpose or attachment to family may not be enough incentive to someone carrying $200,000 in school loan debt, who can earn more in a large city. Some governments and organizations have instituted programs with added compensation for lawyers making even a short-term commitment to small towns. North and South Dakota each provide annual stipends for attorneys who agree to practice in qualifying counties through their Rural Attorney Recruitment Program. The attorney must live in the community for five years and be licensed to practice in that state. Each state’s legislators voted to approve the RARP, which is funded by various parties including benefited counties and state bar associations. The Illinois State Bar Association administers the Rural Practice Fellowship Program, which connects rural law firms looking for law clerks and associates with law students and lawyers interested in practicing in those areas. Associate Fellow Program lawyers are paid a one-time stipend of $5,000 when they begin working in the community, and another $5,000 if they remain for one year. Nebraska offers school loan repayment assistance through its Rural Practice Initiative—attorneys who go into private practice in a community of under 15,000 people can receive up to $6,000 yearly toward their loans, over seven years. In Colorado and Indiana, there is not compensation, but each has programs that match young attorneys or law students with mentors in rural law firms and courts, with an
A Gift That Keeps On Giving: Operating Line Commitment in December
This holiday, the best gift for a farmer is one they can seek themselves: Securing an early commitment from their lending institution for a 2025 operating, or input, line of credit. Depending on a farm’s financial strength, an operating loan is used for different things, most often for bulk purchases necessary to yearly operations: fertilizer, chemicals, seed, cash rent paid upfront, and other vital inputs. If your farm is doing well and not under much stress, you may dip into it to help pay for family living expenses, utilities, and the like as needed until payoff. The more stress your farm is under, the more control the bank may assert over the loan. This might include only advancing funds if an invoice is presented, for example, or a strict limit that does not allow for unforeseen expenses—such as for major engine repair, or underestimating your cost of inputs. Secure Your Loan Early November is the time to assemble your materials and make an appointment with your banker, as soon as you have a good handle on your 2024 harvest volume. There are several reasons to secure a commitment before the end of the year, including the availability of immediate cash to take advantage of input specials. Seed, fertilizer, and equipment dealers want to make cash sales this time of year and are often willing to extend discounts, rewards, and lower interest rates to coax farmers into buying inputs or putting a down payment on equipment in the fourth quarter. (It is not advisable to use an operating loan to purchase equipment or vehicles in full, as this could result in negative consequences for your debt load—you might run out of operating line early or be unable to repay it after harvest.) Another good reason to secure early commitment: More control over taxes. Having ready cash allows you to buy inputs at a time advantageous to your financial position. If it’s been a great year, you may decide to do more business spending before January 1 to lower your tax burden. Keep in mind, though, if you have not finalized your 2023 income taxes yet, doing this may make you look like a less qualified borrower. Peace of mind is not tangible like the first two benefits, but I’d argue it’s just as important. The earlier you step up to take control of your financial situation and request an operating line of credit, the more you can influence a positive decision. What if the bank you’ve been using for 20 years turns you down because the loan officer you’ve worked with retired and the new one doesn’t understand how farm income works? Knowing obstacles early allows time to apply at other institutions if necessary. I knew someone who couldn’t plant because the bank put off an operating line commitment even though everyone thought it would eventually approve the loan. The bank decided in late February—less than a week before the farmer’s rent payments were due—that it wouldn’t offer the loan. Because this farmer waited too long on the decision, he didn’t have time to find another bank. It’s always better to be overly prepared. How To Better Butter Up Your Bank A bank is a business. It is not your friend, although its employees are often friendly. Banks have regulations about how much risk they can take, so if a regulator views your operating loan as unsound for any reason, your banker is required to take action. This may mean not granting you a new operating loan. Or, if you have a loan and your bank requires its name to be on all checks made out to you, the bank may refuse to cash them unless the funds go first to a loan payment. If you budgeted that income for rent or a vendor, it may mean that creditor won’t be paid unless they filed a landlord’s lien or otherwise protected their interests in advance. If you don’t have an “inside man” with the bank to keep you apprised of how things are going behind the scenes—and most people don’t—you may not realize how likely or not it is to approve your loan. If each time you call you are told “I have to check with our main office” but never receive an answer, or you are put with a new loan officer you don’t know, it could be cause for concern. You can be aware of your balance sheet and debts in such a way to meet with the banker around December 1 armed with the best information to increase your chance at success: Know When To Seek Professional Advice It is important to recognize when you need assistance, and Ag & Business Legal Strategies is here to help. With combined decades of experience in not only law and banking but also agriculture, our attorneys and I have worked with ag operations in all types of situations, so we know what options are available depending on circumstances. We can help analyze your operation and financials, restructure debt as necessary, and advocate on your behalf with your lending institution. We have never assisted in a situation in which a farmer called us “too soon”—if you have a feeling something isn’t right, heed it sooner than later. Contact us when harvest is done, or sooner if you can see coming up short on bushels or projected income. The sooner you reach out, the earlier we can help you stabilize your financial position. The longer you wait, even if it’s just until January or February, the more likely you could be out of business come April. Call Us: (319) 363-1641 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
Unintended Consequences: The Inflation Reduction Act of 2022’s Farm Debt Relief Causes Farmers Massive Tax Headaches
For a deeper analysis into this topic, see a version of this article written for tax professionals and other interested parties here. On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) into law. Section 22006 of the IRA provided $3.1 billion for the United States Department of Agriculture (USDA) to provide relief for distressed borrowers under certain Farm Service Agency (FSA) direct and guaranteed loans. On October 18, 2022, USDA provided nearly $800 million in assistance to distressed borrowers to help cure delinquencies and resolve uncollectable farm loan debts: Unintended Consequences of the IRA Payments Farm debt relief is certainly welcome, especially to its recipients. However, when Congress authorized the IRA payments it did not consider that those payments would be counted as income for many recipients, leading to: Two Distressed Borrowers, Similar Problems Consider these two typical borrowers with FSA debts who are in currently not collectible (CNC) status, both of whom benefitted from IRA farm debt relief: Scenario 1: In 2010, Robert defaulted on his FSA-direct loan, which was secured by a lien on his property. When he could not obtain further financing, he could not continue his farming business and the loan went into default. FSA foreclosed, leaving a $100,000 deficiency judgment. Although FSA initially contacted Robert to collect on the debt after the foreclosure, the account was moved into CNC status, where it has remained for 12 years. As of 2022, his past due balance was $150,000, with interest.[1] Scenario 2: Charles has been in default on his FSA-guaranteed loan from a local bank for several years. Charles has continued to farm while working with his bank under forbearance agreements. The debt was moved to the CNC status in 2019. In October of 2022, FSA repaid his entire guaranteed loan to local bank. The payment consisted of principal of $400,000 and interest of $12,000. Now, instead of owing a long-term debt to his bank, with low payments and the option of obtaining a forbearance, he faces a large tax liability (equal to multiple years of payments) due all at once. IRA’s Effects: Increased Taxes While the IRA’s debt relief payments could have many consequences for recipients, for Robert and Charles the primary consequences are increased federal income taxes. Because of this repayment Robert could owe $24,000 or more in additional federal income taxes, and Charles $96,000. Since this debt relief was targeted at farmers who were behind on their payments, Robert and Charles likely cannot pay these bills. Current Nonviable and Viable Options Robert and Charles do have options to address their taxes, but all of them have significant downsides. However, two of the common tools for addressing these taxes are off the table from the get-go. Bankruptcy will not help Robert or Charles any time soon, because these tax debts will be nondischargeable (they will survive a bankruptcy) until at least 2026. Similarly, while insolvent taxpayers don’t pay tax on debt cancellation, that does not apply to a debt repayment like this. Robert and Charles could enter into an installment agreement to pay off their tax debts (with interest and penalties) over six year, if the IRS agrees and they can afford that additional cost. They could make an offer in compromise to the IRS to reduce the amount they owe, but that is a lengthy, difficult, and expensive process, often requiring professional assistance. Moreover, the IRS can take up to two years to review an offer in compromise. USDA is Considering Options to Assist Farmers with their Income Tax Problems. After being informed of the significant problems caused by the repayment of the debt for over 13,000 farmers, the USDA has held a series of meeting and considered three options to ease the income tax problems experienced by farmers: asking the IRS to streamline and ease offer in compromise criteria, giving farmers the option to retroactively opt out of this debt relief, and recharacterizing this debt repayment as debt cancellation instead. The USDA is also considering asking the IRS to grant IRA farm debt relief beneficiaries an extension of time to file their tax returns so they can better plan for and adapt to this unexpected income. It is also considering sponsoring professional tax assistance for affected farmers. Get the Advice You Need and Contact your Members of Congress! If you or someone you know received IRA farm debt relief but now don’t know how to deal with the tax consequences contact Ag & Business Legal Strategies today! We can assist in assessing the consequences, navigating the options, and making an informed decision. Moreover, contact your members of Congress! Tell them USDA needs to find ways to help farmers with the unforeseen tax consequences of the IRA’s farm debt relief. Download a letter template here. Read a deeper analysis here. [1] Thanks to Kristine Tidgren of Iowa State University’s Center for Agricultural Law and Taxation for Robert’s scenario.
Unintended Consequences: The Inflation Reduction Act of 2022’s Farm Debt Relief Causes Farmers Massive Tax Headaches (Deep Dive)
On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) into law. Section 22006 of the IRA provided $3.1 billion for the United States Department of Agriculture (USDA) to provide relief for distressed borrowers under certain Farm Service Agency (FSA) direct and guaranteed loans. On October 18, 2022, USDA provided nearly $800 million in assistance to distressed borrowers to help cure delinquencies and resolve uncollectable farm loan debts. Unintended Consequences of the IRA Payments Farm debt relief is certainly welcome, especially to its recipients. However, when Congress authorized the IRA payments it did not consider that those payments would be counted as income for many recipients, leading to: Two Distressed Borrowers, Similar Problems Consider these two typical borrowers with FSA debts who are in currently not collectible (CNC) status, both of whom benefitted from IRA farm debt relief: Scenario 1: In 2010, Robert defaulted on his FSA-direct loan, which was secured by a lien on his property. When he could not obtain further financing, he could not continue his farming business and the loan went into default. FSA foreclosed, leaving a $100,000 deficiency judgment. Although FSA initially contacted Robert to collect on the debt after the foreclosure, the account was moved into CNC status, where it has remained for 12 years. As of 2022, his past due balance was $150,000, with interest.[1] Scenario 2: Charles has been in default on his FSA-guaranteed loan from a local bank for several years. Charles has continued to farm while working with his bank under forbearance agreements. The debt was moved to the CNC status in 2019. In October of 2022, FSA repaid his entire guaranteed loan to local bank. The payment consisted of principal of $400,000 and interest of $12,000. Now, instead of owing a long-term debt to his bank, with low payments and the option of obtaining a forbearance, he faces a large tax liability (equal to multiple years of payments) due all at once. IRA’s Effects: Increased Taxes While the IRA’s debt relief payments could have many consequences for recipients, for Robert and Charles the primary consequences are increased federal income taxes. In 2022, the IRA program paid Robert’s deficiency, including interest, triggering $150,000 in 2022 taxable income. FSA will send Robert and the IRS a 1099‑G to report this income. Although Robert can deduct the $50,000 in interest paid on his behalf, he is liable for around $24,000 in federal tax, which he cannot pay. If Robert’s state levies an income tax, Robert might also owe state income taxes. When the IRA program paid Charles’s $412,000 debt, he also faced the prospect of significant income taxes, possibly exceeding $100,000. Fortunately, his CPA assisted him in avoiding payment of the income taxes in 2023 for his 2022 income. When FSA notified Charles of the debt repayment to his local bank, Charles immediately turned to his CPA who helped him prepare for this unexpected income surge. The interest is deductible, and won’t increase Charles’s taxable income, but the principal is not deductible. Charles was able to defer collection on some grain sales into 2023, he had Net Operating Losses (NOL) he could use to offset some of the income, and he purchased his 2023 inputs in 2022 to decrease his 2022 Schedule F income and minimize his 2022 self-employment taxes. Current Nonviable and Viable Options Robert and Charles do have options to address their taxes, but all of them have significant downsides. Bankruptcy is not a viable option. Right off the bat, one of the primary tools for dealing with debts is off the table: Any income taxes that Robert or Charles cannot pay would be priority debts in a bankruptcy and not dischargeable in bankruptcy until at least 2026. In that time the IRS and state departments of revenue are likely to file tax liens. There is nothing exempt from an IRS lien, meaning that if the taxpayer had any property with equity, like an exempt homestead, the tax lien would make the tax debt a secured claim in any bankruptcy. While a bankruptcy in several years could discharge the tax debt, it would not eliminate the tax lien, and the IRS or state department of revenue could levy on the property and sell it to collect the tax debt. The insolvency exception to tax liability for debt cancelation is not available. IRC § 108 provides an avenue to avoid the taxes due because of debt cancelation or debt forgiveness. § 108 is commonly referred to as the insolvent taxpayer exception. It allows taxpayers that were insolvent before the debt cancelation to exclude the income from taxation to the extent of their insolvency.[2] Because the debt was paid, not canceled, Robert and Charles cannot reduce their tax liability under IRC § 108. If the debt had been canceled instead of repaid, IRC § 108 would have been available to them to potentially eliminate the income occasioned by the cancelation of the debt. Alas, Congress did not take this route. Installment agreement. It is possible that Robert or Charles could work with the IRS to set up an installment agreement to pay off his tax debt over six years. This could put a significant strain on their finances until the tax debt is repaid. The IRS usually places a tax lien on the taxpayer’s assets until the installment agreement is completed. Moreover, interest and penalties continue to accrue until the debt is paid in full, and the IRS is not required to accept a payment plan. Offer in compromise. Robert and Charles’s best legal remedy may be to hire legal counsel and seek to negotiate an offer in compromise (OIC) with the IRS to lower the amount of tax for which they are liable. The OIC process is complicated and time consuming.[3] It can take many months to finalize, and it includes costly fees. There is no guarantee the IRS will accept an OIC, but IRS states that it generally approves offers in compromise when the amount offered represents the most the IRS