- September 19, 2024
- Kelvin Birk
- Bankruptcy
Your home and farm mean a lot to you, so if you have gotten into a financial hole and are facing foreclosure, you want to take action to stop it. Foreclosure in Missouri means the lender can take legal action to seize and sell your property if you fail to make mortgage payments or pay property taxes.
Fortunately, there are ways to stop foreclosure. Recognizing that farming is an important industry and farmers face factors such as extreme weather that can negatively impact their income, the United States Bankruptcy Code has created a special type of bankruptcy that makes it easier for them to get out of debt. Chapter 12 bankruptcy, designed for family farmers and fisherman, is a tool that can stop foreclosure through debt restructuring so you can handle the economic challenges of farming while preserving your essential assets.
If you are a family farmer facing foreclosure, an experienced Missouri bankruptcy lawyer can examine your individual situation and determine whether you are eligible for Chapter 12 bankruptcy or some other form of debt relief and guide you through the process.
Understanding Foreclosure in Missouri
There are two types of foreclosure in Missouri: judicial and non-judicial foreclosures. Non-judicial foreclosures are more common.
Judicial – A judicial foreclosure is very rare in Missouri. A judicial foreclosure requires the lender to file a lawsuit in court to obtain a court order allowing foreclosure and sale of the property. The court oversees the process and declares a foreclosure, and then the property can be sold at auction. It is used when the mortgage or deed of trust does not contain a “power of sale” clause and is generally a longer process than a non-judicial foreclosure.
Non-judicial — Non-judicial foreclosures do not require the lender to go to court, as the mortgage or deed of trust contains a “power of sale” clause that allows the property to be sold upon default. Instead, the lender must send a breach letter notifying the borrower of default and intent to foreclose and publish a notice of foreclosure sale in a local newspaper. The property is sold at a public auction, and the lender can bid to take ownership of the property or it can be sold to another buyer. The borrower has a right of redemption, so can pay off the full loan amount before the foreclosure sale to keep the property. The borrower also has one year after auction to do so.
How Chapter 12 Bankruptcy Can Help Stop Foreclosure on Your Missouri Farm
Chapter 12 bankruptcy gives family farmers a way to avoid foreclosure by creating a plan to repay their debts without losing their farm or belongings. Under Chapter 12, you come up with a plan to repay creditors over a 3- to 5-year period under terms that are more favorable for reorganization than a Chapter 13 and less complicated and expensive than a Chapter 11 bankruptcy proceeding. The plan generally provides for payments over three to five years. Filing the petition for Chapter 12 will stop or ‘stay’ most collection activities by creditors, including foreclosure, and the bankruptcy may be discharged after all payments have been made.
Eligibility for Chapter 12 Bankruptcy in Missouri
To be eligible to file a Chapter 12 bankruptcy, you must meet certain qualifications regarding income and debt and must participate in credit counseling to make sure that your annual income is sufficient to meet the agreed-upon payments. At least 50% of your total debts must be related to the farming operation, and more than 50% of your gross income for the preceding tax year must have come from farming. You may not have more than $11,097,350 in total debt (secured and unsecured).
Chapter 12 Bankruptcy Process for Missouri Farms
To start the process, a farmer must file a Chapter 12 bankruptcy petition along with required financial documents and a reorganization plan to repay creditors over 3-5 years through future income from farm operations. The documents generally required include:
- schedules of assets and liabilities, current income and expenditures
- a schedule of executory contracts and unexpired leases
- a statement of financial affairs.
An impartial trustee is appointed to oversee the case and distribute payments to creditors, and an automatic stay goes into effect immediately, preventing foreclosures, repossessions, and collection actions.
You make agreed-upon payments while continuing operations, under the oversight of the trustee, until the plan ends.
After completion, most remaining eligible debts are discharged. Certain debts, like alimony, child support, and some taxes are not eligible for discharge.
Alternatives to Chapter 12 Bankruptcy for Missouri Farms Facing Foreclosure
Chapter 12 is not necessarily the answer for every family farmer, so alternative options should be discussed with an experienced bankruptcy attorney. These may include:
Loan Modification or Refinancing – You or your attorney may be able to negotiate directly with your creditors for new payment terms, better interest rates, or longer loan payback periods to make repayment easier. You may also be able to settle your debt for less if you can come up with a lump payment.
Loan Programs – You may qualify for government-sponsored loan programs available specifically for agricultural businesses at low interest rates. You may also take out a new private loan to pay off multiple existing debts if you can qualify and manage payments.
Selling Assets — You may be able to raise needed funds by selling off farm equipment, furniture, land, or other assets, and operating on a smaller scale. Chapter 12 provides advantages for asset sales.
Restructuring and Operational Changes — You may be able to improve your financial situation by making changes such as cutting costs, reducing staff, changing crop production, or renegotiating leases, without having to go through bankruptcy.
Chapter 7 bankruptcy – If you no longer wish to operate your farm, or if there is no equity in your assets, Chapter 7 bankruptcy allows for a quicker liquidation of all assets to pay off creditors, as opposed to Chapter 12’s reorganization process.
Benefits of Chapter 12 Bankruptcy for Stopping Foreclosure on Your Missouri Farm
While these other methods of getting out of a financial hole do exist, Chapter 12 bankruptcy offers beneficial provisions tailored to family farmers that could make it a better option if you want to remain operational after facing foreclosure threats. Advantages include:
- Allows for flexible repayment plans based on seasonal income
- Provides the chance to modify secured loans and mortgages through “cramdown” provisions which reduce the amount owed on secured debts to the current fair market value of the collateral securing those debts
- Offers more favorable tax treatment on asset sales compared to other bankruptcy chapters. Under Chapter 12, debtors can sell their property without having to pay off any tax liens on that property, as these are treated as unsecured debts. You may only have to pay part of these debts or not pay them at all.
Get Help for Family Farmers
If you are a family farmer struggling to make ends meet, Chapter 12 bankruptcy may be your best option; but to be sure, you should seek guidance from an experienced Missouri bankruptcy attorney.
A farm owner himself, attorney Kelvin Birk is a Certified Public Accountant as well as a lawyer, with more than 30 years of experience in accounting and tax and business consulting. This dual background gives him the essential knowledge to guide family farmers through financial problems. At the Birk Law Firm, we are here to help you navigate the Chapter 12 bankruptcy process, so that you can decrease financial risks and emerge stronger when it is over.
Call us today for a free consultation to discuss your individual situation and get started on the road to a brighter financial future.
FREE CONSULT CALL NOW 573-332-8585
Attorney Kelvin Birk
Kelvin Birk is a lawyer as well as a certified public accountant, with more than 30 years of experience in accounting and tax and business consulting, and more than 20 years of experience in numerous legal matters. This combined expertise allows our law firm to provide a level of service above that of other firms. Whatever your legal situation, your attorney at Birk Law Firm can counsel you as to the tax implications. We have experience in providing myriad legal representation services to residents of southeast Missouri and other areas.. [ Attorney Bio ]
