Not since the farm crisis of the 1980’s have droves of farmers been asking how to find an attorney as they make their financial plans for the 2016 farming season. The early decision to seek legal counsel may significantly benefit a farm’s continued operation, and selecting the right attorney to guide a farm through the maze of legal obstacles is a crucial step in that process. Delaying consultation with legal and tax experts will not make the problem go away. Delay will invariably lead to the farmer having fewer options for a successful reorganization. Farmers should look for an attorney experienced in handling business bankruptcies, appreciates the tax implications of financial restructuring or bankruptcy, and understands the business of agriculture.
An attorney’s experience representing Debtors in business bankruptcies is very important. This includes experience in both Chapter 11 (general business bankruptcy) and Chapter 12 bankruptcy (farm bankruptcy). Unfortunately, there are few bankruptcy attorneys who represented farmers in the 1980s who are still practicing and representing farmers today. Many have retired. Many have moved on to other practice areas or now exclusively represent creditors.
Experience in the tax implications of a farm restructuring both inside and outside of bankruptcy is essential. Failure to fully consider the tax consequences when negotiating with creditors can result in the farmer incurring unexpected income taxes that can cripple their farming operation. Questions abound regarding handling income taxes resulting from the gain on the sale of farm assets. Some can be dealt with in a properly planned Chapter 12 bankruptcy. Questions also arise regarding discharge of indebtedness, which the IRS and state departments of revenue will treat as income that may be taxable depending on the situation. If tax considerations are not properly analyzed, the solutions achieved in renegotiations with creditors and landlords may well lead to significant tax problems that could prohibit a successful resolution of a farm’s financial problems.
Understanding the business of agriculture is very important. If the attorney has a solid understanding of the business of agriculture, it will be much easier for the farmer to educate the attorney on his farming operation rather than needing to teach the attorney the basics of farming. Being raised on a farm and having studied agriculture are indispensable attributes for an attorney representing the financially troubled family farmer.
Questions to ask when interviewing a prospective attorney:
- Do you represent “X”? (insert the name of one of your creditors) Ask this question regarding each of your major creditors as you probably do not want to discuss your situation with an attorney that represents one of your creditors.
- Please describe your experience in representing farmers with major debt issues?
- Have you represented farm debtors in bankruptcy?
- If so, in which chapters of bankruptcy?
- In which bankruptcy courts have you practiced?
- How long have you been representing farm debtors?
- How many farm debtors have you represented?
- Were you raised on a farm? If so, please describe it?
- Have you studied agriculture?
- If so, where, and what was your major?
- What is your experience in dealing with the tax implications of farm debt restructuring?
- Please describe the team that you believe should be assembled to assist me in my debt restructuring or bankruptcy?
- Are you comfortable that your attorney understands your financial situation?
- Can you easily talk to your attorney?
- Are you comfortable speaking to your attorney? You will be spending a lot of time with your attorney.
- Has the attorney discussed fees and how they will be paid? It is best to have this discussion at the outset of the attorney-client relationship.
Sources for legal help:
- Iowa Rural Concern (800) 447-1985
- The American Board of Certification maintains the list of attorneys certified in business bankruptcy. The web site address is abcworld.org.
- State Cooperative Extension Services
- Farm Business Associations
- The farmer’s tax preparer
- The farmer’s normal business attorney