Chapter 12 Bankruptcy on the rise


Caseload statistics from the United States Courts indicate that for the three-month period ending March 31, 2018, there were 116 Chapter 12 bankruptcy filings in the U.S. These Chapter 12 bankruptcies are designed for "family farmers" or "family fishermen" with "regular annual income". While down slightly from the first quarter of 2017, during which 118 Chapter 12 bankruptcies were filed, the March data highlights the tough financial conditions across much of rural America. From the Northeast, into the western Corn Belt and Upper Midwest, down into the Southwest and into the West, farm bankruptcies are higher than year-ago levels.  
Of the 116 filings in the first quarter of 2018, nearly 70 percent of the bankruptcies were in farm country, i.e. dairy, corn, cotton, soybean and wheat producing areas. In these areas, year-over-year increases in Chapter 12 filings ranged from up 63 percent to up 108 percent, Figure 1.  The higher bankruptcy levels in these areas are likely attributable to continued declines in cash receipts for dairy, wheat, corn and cotton, as projected by USDA.  
There were 501 Chapter 12 bankruptcy filings during 2017 – the highest level since 2012. Higher bankruptcy levels were anticipated given the financial stress in agriculture. Since 2013, net farm income, a broad measure of farm profitability, has declined by 52 percent, and in 2018 is projected to be at a 12-year low. In fact, bankruptcies have climbed each year since 2014; and since 2014, farm bankruptcies have increased nearly 100 percent, Figure 2.
The bankruptcy rate per 10,000 farmers is also at a multi-year high. In 2017, there were estimated to be slightly more than 2 million farmers, and the bankruptcy rate per 10,000 farms was approximately 2.5 farms – the highest level since 2011.
While bankruptcy levels are rising, USDA does project improvements in solvency and liquidity ratios. The debt-to-asset ratio is projected to decline to 12.6 percent from 12.7 percent and the debt-to-equity ratio is projected to decline to 14.4 percent from 14.5 percent. The debt service ratio, which measures the share of farm production needed to service debt, is projected to remain mostly unchanged in 2018 at 27 percent. Despite these ratios, real estate debt is projected at $239 billion in 2018, and non-real estate debt is projected at $150 billion – both record highs.

Our office can help you if your farm is experiencing financial difficulties.  John is a farmer and understands the current economic conditions.  
I

Comments

Post a Comment

Popular posts from this blog

THE ESTATE TAX EXEMPTION REPEAL BOOGEYMAN-VERSION 4.0

Image
    We have reached that time again where the repeal of the federal estate tax exemption boogeyman (the “Repeal Boogeyman”) is being trotted out by many.   This is the fourth time in my 18-year career this has happened.   Before addressing the Repeal Boogeyman more, let us first look at where things stand as to the federal estate tax exemption. Next year, any person with a pulse will be able to shield $13,610,000 from the federal estate tax.   Together, a married couple can shield $27,220,000.   In 2025, this amount will increase until the estate tax D-Day /Armageddon hits on January 1, 2026.   On that date, the exemption amount will revert to $6,800,000 and be “adjusted for inflation”.   With the high rate of inflation we have seen over the past few years, many believe, when adjusted for inflation, the new exclusion amount will be around 7.5 million per person.    Meaning, even if the Repeal Boogeyman has his way, a married couple can...
Read more

Estate Planning, Medicaid Preparation, or Both?

Image
 In our last article the discussion centered around the importance of planning in advance for the possibility of needing Medicaid in the future.   Essentially the idea being to plan for the worst, and hope for the best.   This type of forethought is imperative given that Medicaid requires planning to occur at least five years in advance of needing assistance with paying for the costs of home assisted living or long-term nursing care. The Medicaid Estate Recovery Program allows the government to place a lien on any real estate owned by the Medicaid recipient after death. If you are 55 years and older, and receive Medicaid coverage, your assets are subject to a Medicaid lien without the proper planning.    Depending on the level of care needed, according to recent Genworth figures, the average cost of assisted living is $4,500 per month, and the average monthly cost of skilled nursing is $8,910. Failing to plan for how to pay for these costs can result in the lo...
Read more

Medicaid-Why you and your farm should care.

Image
Medicaid – What is it and why should you (and your farm) should care? Our law firm frequently gets calls from clients wanting to inquire about making a Last Will and Testament or appointing someone as Power of Attorney.   This is quite often prompted by the death of a loved one, the diagnosis of an unexpected illness, or being told of a negative estate experience by a friend or neighbor.   Estate planning at any stage of life is something we would always encourage, but there is an aspect of planning that we often times find overlooked and that is planning in advance for Medicaid. There is much confusion about not only the difference between Medicare and Medicaid, but how and what each program covers specifically.   For the purposes of this article, we will be focusing the discussion on long term care needs such as the expense of a nursing home.   For that discussion, the only important thing to note about Medicare, including Medicare supplement insurance, is t...
Read more