July is the month most law changes take effect in Iowa. Some highlights that impact agriculture operations are below:
Small Claims. More Fighting for less.
The small claims limit will be raised from $5,000 to $6,500, effective July 1st. Plaintiffs can now collect up to $6,500, plus fees if applicable, when filing small claims actions. Small claims are more cost effective than formal district court litigation as discovery and other things that slow down civil litigation are not generally an issue. You also can get a court date much quicker and a ruling much faster. Also, attorneys are optional at best in small claims.
OWI
All OWI related offenses will require the “blow and go” breath analyzer to ensure that the operator is not consuming alcohol while driving. It used to be only those with a high BAC at the time of arrest were required to get the analyzer for a 1st offense OWI. The rules for getting a work permit after your licenses has been suspended have been loosened up and should reduce the number of violations for driving while suspended. This should increase access to the work force as those under suspension should be able to get a license that is broader in nature than previously allowed.
Chapter 12 Bankruptcy
Agriculture is full of risks: marketing, financial, production, labor, and legal risks that must be managed. Net income on the farm in 2017 was down 9% from the previous year. While the last four years have shown a decrease in total bankruptcy filings, farm bankruptcy filings are up 17%. It appears to be moving higher.
Bankruptcy is a risk management tool of last resort for a farming operation. We in the Midwest are ingrained with a “pull ourselves up by the boot straps” approach to all problems, but this may not be the wisest decision when it comes to farm business in peril.
Chapter 12 of the Bankruptcy Code has made business reorganization and debt repayment a much more streamlined process, allowing family farmers and fishermen to reorganize their operation to avoid failure.
To qualify under a Chapter 12 proceeding, the farmer must have “regular annual income” which is “sufficiently stable and regular enough income” to make payments for a restructured business through this chapter (11 U.S.C. § 101(19)). A farmer can be an individual and spouse, a corporation or a partnership. The farmer can’t have over $4,031,575 of debt. If the limits are exceeded, a Chapter 11 or 13 can still be used. The farmer must also have 50% of the debt connected to the farm operation and 50% of the gross income from the farm. Chapter 12 is not for weekends and nights, hobby farmers.
Chapter 12 allows a farmer to alter debt owed by reducing total debt “to the fair market value of the property, reducing the interest rate to the current market rate, and … extending the payment period”. This is sometimes referred to as a cram down.
To file, the farmer needs $700 ($200 on the day of filing and $500 within 15 days of filing). A complete list of assets, liabilities, income, expenses, contracts, and a financial affairs documents also need to be prepared. Further, the farmer must include a list of creditors, amount and nature of the claim, the source, amount and frequency of farm income, a list of the farmer’s properties, and a detailed list of monthly farming and living expenses. The claims are divided up into three categories. Priority claims are first class claims, like taxes, that must be addressed in the plan. Secured claims, are obligations with a piece of collateral tied to it, like a mortgage tying real estate to a promissory note. Unsecured claims are not tied to collateral, like a credit card or an open account feed bill.
Collection actions are stopped during this time by a Stay order. Between three and five weeks after filing, a meeting of the creditors will be held where the trustee and the creditors of the farmer can ask the farmer questions under oath.
A trustee is assigned upon filing, who collects the income from the farm and pays it to the creditors according to a plan that the court approves. That plan has to be approved within 90 days of filing. The plan needs to detail how to pay debts over 3-5 years. 45 days after the filing of the plan, a hearing will be held on if the plan is to be accepted. Creditors can appear to object.
The plan generally includes payment to creditors, with interest, if the obligation is a secured debt, selling excess assets, full payment of priority claims and giving up assets that are secured by liens and obligations. The idea is that the lenders and secured creditors get at least the value of the asset securing the promise to pay. Anything above the value is “unsecured” and may or may not get paid out. Once the trustee has collected all the payments under the plan, the case may be discharged and the farmer will not owe for obligations not addressed as part of the plan.
Some things cannot be discharged like alimony, child support, debts obtained via false information, and debts for physically hurting someone.
If the plan doesn’t work, the court can dismiss the case or convert it to a Chapter 7 case, which is a liquidation. That only happens if fraud is involved.
If a business is filing a Chapter 12, a personal bankruptcy may still be needed to resolve personal guarantees.