AMES, Iowa -- Whether they’re on the farm or along Main Street, Iowans are contemplating their options as farm and household income drops, debt increases and economic uncertainty continues. One of those options is bankruptcy, says attorney John R. Baker, who answers legal questions for Iowa State University Extension’s Iowa Concern Hotline.
“If you can’t get out of debt or have manageable debt within three years, you’re probably a good candidate for bankruptcy,” Baker said. “Bankruptcy is your chance for a new start.”
Americans nationwide are taking advantage of the new start bankruptcy offers. According to the American Bankruptcy Institute, an organization of attorneys, accountants and other bankruptcy professionals, consumer bankruptcy filings totaled more than 1 million for the first nine months of 2009.
A chance to start over
Bankruptcy gives insolvent but honest debtors the chance to start over and also is fair to unsecured creditors, Baker explained. But it’s not to be entered into lightly. It’s a serious process that takes three to five years to complete.
Iowans who think they may need to declare bankruptcy should speak with an attorney — preferably a bankruptcy specialist — as soon as possible, Baker said. Be prepared to provide tax returns and balance sheets for the past three years, as well as copies of promissory notes and security agreements to any current creditors, real estate leases and mortgages and personal property leases. And that’s only the beginning.
Declaring bankruptcy will impact credit, but by the time people are considering bankruptcy their credit is probably already damaged, Baker commented. “Bankruptcy gives you a fresh start to rebuild your credit.”
Voluntary or involuntary
Someone with unmanageable debt may file for bankruptcy voluntarily, the attorney continued. In addition, creditors may bring involuntary bankruptcy action against a debtor. However, farmers are exempt from involuntary bankruptcy proceedings.
“You’re considered to be a farmer if, for the year preceding the tax year of filing bankruptcy, more than 80 percent of your gross income was derived from a farm you owned or operated,” Baker explained.
Types of bankruptcy
Different types of bankruptcy apply to various situations, Baker said. Liquidation, known as Chapter 7 bankruptcy, is for those who have no hope of paying off their debts. All assets are turned over to the court, a bankruptcy estate is created and a trustee is appointed.
An alternative to liquidation is debt reorganization, Baker explained. Chapter 11 bankruptcy allows a business to continue while debts are restructured. Chapter 12 bankruptcy has special provisions for family farmers, and Chapter 13 bankruptcy applies to individual wage earners and small proprietors, allowing them to repay debts over time from income.
Help from ISU Extension
ISU Extension’s Iowa Concern Hotline, (800) 447-1985 (voice) or (800) 735-2942 (TDD), is available all hours, all days, Baker said. People can call to talk about legal issues and financial questions, as well as the stress they’re facing in the current economy. ISU Extension staff and the hotline counselors can help farmers in financial difficulty understand the many options available under bankruptcy law and the procedures involved, and can explain other resources such as the Iowa Farm Debt Mediation Law. Information also is available online at www.extension.iastate.edu/iowaconcern/.
The Center for Agricultural Law and Taxation (CALT) at Iowa State University provides information to producers, professionals and agribusinesses. Visit www.calt.iastate.edu/ or call (515) 294-5217.
For more information on dealing with stress and economic uncertainty, Iowans may contact their ISU Extension county office or visit ISU Extension’s Managing Tough Times Web site, www.extension.iastate.edu/answers.
Laura Sternweis, Extension Communications and External Relations, (515) 294-0775,