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Surge Expected in Farm Bankruptcies

August 29, 1988

MADISON, Wis. (AP) _ Bankruptcy court officials predict the drought will force hundreds of Midwestern farmers who might otherwise have survived financially to abandon their fields after the coming harvest.

After a sharp drop in bankruptcy cases in the first half of 1988, courts throughout the Farm Belt expect a surge in bankruptcy petition filings in the next six months, even with help from the huge federal drought assistance bill, according to officials in Iowa, South Dakota and Wisconsin.

″The figures looked so promising, but with what’s happened this summer we’re not going to bump along with this low figure,″ said Ann Manley, chief clerk of the U.S. Bankruptcy Court in Madison.

Michael Duff, an assistant to the U.S. Department of Agriculture’s assistant secretary for economics, said farm bankruptcies linked to the drought would increase nationwide later this year, stunting an economic upturn in the farm economy that began in late 1987.

″Last year debts were actually less than receipts and land values stabilized. But historically, anytime you have a drought the numbers go up and down,″ Duff said. ″There were probably a number of farmers on the line, having a make-or-break-you year and they probably will go bankrupt or quit.

″We don’t have any way of knowing how many, but it will be a national kind of problem,″ Duff said.

The Madison court, which handles bankruptcy petitions involving individuals, businesses and farms for 44 of Wisconsin 72 counties, received 154 petitions from farmers the first seven months of the year. That compared with 293 for the same period last year.

Since 1985, farm bankruptcies have made up 13 percent to 16 percent of total cases in the Madison district. There were 420 in 1985, 511 in 1986 and 448 last year.

″I’ll predict filings will more than double by the end of the year,″ Ms. Manley said. ″We’ll be around 400 again.″

Barbara Everly, chief clerk of the U.S. Bankruptcy court in Cedar Rapids, Iowa, said she expected a 20 percent increase in bankruptcies this winter.

″You’re not only talking about farms, but it may be the final blow for implement dealers and service stations and the convenience stores in those small farm communities that have been on the edge,″ said Everly.

As in Wisconsin, Everly said farm bankruptcies in Iowa so far this year have fallen well below previous levels. She said climbing land values in the state and an improving farm economy had eased financial woes.

But now, with crops stunted or wiped out and many farmers still owing the costs of seed and fertilizer, ″I expect that lenders are getting terribly, terribly jumpy,″ she said.

Ed Jesse, a University of Wisconsin agriculture economist, called the drought ″a major setback″ to an agriculture economy that began improving late last year.

″A lot of them are just going to have to call it quits,″ Jesse said.

In South Dakota, farm bankruptcies were down by almost 78 percent the first seven months of the year.

Pat Naylor, deputy clerk for the U.S. Bankruptcy Court in Sioux Falls, S.D., said 61 farm petitions had been filed through July, compared to 311 for the same period a year ago.

South Dakota was among the early states hardest hit by the drought.

However, Judge Irvin Hoyt of the U.S. Bankruptcy Court in Pierre, S.D., said the number of farm bankruptcies would depend on the eligibility and timing of federal drought aid to farmers.

President Reagan signed the $3.9 billion drought assistance bill Aug. 11, and the government hopes to begin taking applications by Oct. 1. Under the law, aid to farmers who lose more than 35 percent of their expected harvest will cover 65 percent of that lost income. For farmers who suffer crop losses of more than 75 percent, the aid would equal 90 percent of the lost income.

″Until we know exactly ... when (aid) will be available, particularly for those in bankruptcy who must modify their plans, we won’t know what’s going to happen with filings,″ Hoyt said.

Farmers generally file Chapter 11 petitions, which grant protection from creditors and create a plan for debt payment, or Chapter 12 petitions, which were created in 1986 in the Family Farm Act.

Chapter 12 petitions generally resemble Chapter 11 petitions, but proponents say they give the debtor stronger control over the payment schedule and use a trustee, generally an attorney, to administer it.

Chapter 11 and 12 debt payment plans can be modified to fit unexpected economic troubles and even allow payments to be temporarily suspended. But the huge financial losses anticipated in the drought may require payments to be reduced or suspended for so long that creditors might urge liquidation, said Mark Bromley, a Lancaster attorney who handles farm bankruptcies.

Creditors ″would have a strong argument that the (normal bankruptcy) plan simply won’t work,″ Bromley said.

″My greatest concern would be for the people already in bankruptcy. In some cases, payment plans may have to be modified to drastically reduce or suspend payments for a year,″ Bromley said.

Bromley and Hoyt also said that next spring’s operational costs for feed, fertilizer and other items may be too high for some under present plans and reduced income.

″Buying at higher costs will throw those plans and cash flows back into court for modifications,″ Bromley said.

Bromley said he’s had relatively few consultations with farmers about financial problems this summer.

″I think the reason is it’s so hard out there, so beyond the experience of most farmers, that they want to wait and see where things fall,″ he said.

End Adv AMs Monday Aug. 29