Jocco: Your friend should start talking to the creditor NOW. The earlier they know of a problem the more likely they will be to work things out. Now that being said he needs to go talk to two people BEFORE he talks to anyone about this issue. Those two people would be a good tax person and a good local lawyer that deals in bankruptcy an related issues. Your friend needs to know exactly what the law says in HIS state. The reason for the tax person is that debt write offs and other shortages can turn into taxable income for your friend.
Have a good friend that went under in the 1980s. HE got everyone to work with him and there was debt wrote off. That write off sunk him. The IRS counted that write off as taxable income. He was hit with a $50,000 tax bill. HE was trying he best not to have to declare bankruptcy and it cost him big time in taxes. If the write off had been under a chapter 13 farm reorganization the tax issues would have been way different.
The big issue your friends needs to really keep on top of is who has a lien on what. Some states give landlords an automatic crop lien for rent amounts some do not. The ones that do not put the landlord behind all the secured creditors.
For equipment he may have two creditors on a piece of equipment. Lets say he bought a tractor and financed it with John Deere credit. They will have a lien on the tractor for the purchase amount less any payments made. Then the lender that loaned him operating money would have a blanket lien on all of the equity left after the first lien holder. This blanket lien may not even have all of the equipment listed. This has got many guys in trouble when they try to sell equipment for cash flow. If he has a blanket lien with a lender, that lien is on everything he owns other than some limited personal property like dishes and furniture. I have been to auctions in the 1960s where the washer and dryer would be sold because they where considered "equipment". The laws have changed since then but if he has some high dollar personal stuff, like a bunch of guns, they can be gone after a creditor gets a default judgment against him.
I wish him well but if he is mainly a grain farmer then he is going to have a rough time because the grain farmers have made record profits the last few years. If he has troubles now then he will never make it in more normal times. If he is a livestock guy he needs to face the reality that there is very little profit in livestock right now unless you are largely debt free. So any debt he has will be hard to pay off even if feed prices drop some. There are rarely windfall profits, like the grain guys got a few years ago, in the livestock business.
I think lenders will not be as flexible as they where in the late 1980s and early 1990s. The bank regulations have gotten stricter after the housing bubble drop. Also there is little public sympathy for farmers right now. The average blue collar guy is just treading water and he sees Government payments going to farmers that are getting record high grain prices. There will not be bail outs like the 1980s saw.
Your friend's assets should still have high value based on land and equipment values. He should maybe think about liquidating everything and starting over. There are going to be turbulent times in the next few years as production costs have to re-adjust to cheaper grain prices. There are going to be a bunch of guys lose their shirts on the cash grain farming. The income will drop much faster than the inputs do. The farmer will be the one that gets squeezed in the middle.
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Today's Featured Article - Listening to Your Tractor - by Curtis Von Fange. Years ago there was a TV show about a talking car. Unless you are from another planet, physically or otherwise, I don’t think our internal combustion buddies will talk and tell us their problems. But, on the other hand, there is a secret language that our mechanical companions readily do speak. It is an interesting form of communication that involves all the senses of the listener. In this series we are going to investigate and learn the basic rudimentary skills of understanding this lingo.
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