How a Farm Negotiated Debt Relief to Prevent Foreclosure After a Bad Season

Farming can be a tough business. When you’re at the mercy of the weather and market prices, it’s easy to have a bad year that puts you deep in debt. That’s what happened to the Smith family, who run a medium-sized dairy farm in Wisconsin. After a string of tough seasons, they found themselves facing foreclosure. But with some creative thinking and hard work, they managed to negotiate debt relief and save the farm.

Facing the Facts

The Smiths had been steadily losing money for a few years. Milk prices were low, and an unusually wet season meant they lost a lot of crops to flooding. They had taken out loans to keep the farm running, but soon found they couldn’t make the payments.

“It was terrifying,” said Julie Smith, who handles the finances. “We kept thinking, next year will be better. But it never was. Eventually we had to face facts – we owed the bank more than we could pay back.”

The bank began foreclosure proceedings in the fall. The Smiths had until spring to pay off their loans, or the bank would take the farm.

Exploring Their Options

The first thing the Smiths did was sit down with a lawyer who specialized in agricultural finance. He explained their options, like Chapter 12 bankruptcy or selling off assets. But the Smiths wanted to keep the farm in the family.

“This land has been in our family for generations,” said Pat Smith, Julie’s husband. “We didn’t want to be the ones to lose it.”

The lawyer suggested trying to negotiate directly with the bank. If they could show a plan to repay a reduced amount, the bank might agree to new terms. The Smiths knew it was a long shot, but it was better than nothing.

Proposing a Payment Plan

The Smiths put together a bare bones budget showing their essential expenses for the farm. They cut unnecessary spending as much as they could. Based on projected income, they proposed a 5-year payment plan to the bank.

“Basically we would pay interest only for a couple years, to give us time to get back on our feet,” Julie explained. “Then we would pay off a portion of the principal over the remaining years.”

It was a steep reduction in what they owed. But their lawyer reviewed the plan and thought it had a chance. The bank would rather get some of their money back than none at all.

Negotiating with the Bank

The first meeting with the bank manager did not go well. He was skeptical of their projections and declined the initial offer. But the Smiths persisted, bringing in detailed crop yield and milk production reports to back up their business plan.

After several tense meetings over a few weeks, the bank agreed to try the 5-year payment proposal. They required the Smiths to report their finances each quarter and have their books audited annually. It wasn’t ideal, but it was a lifeline.

Sticking to the Plan

Over the next couple years, the Smiths worked harder than ever to stick to their budget and meet the new payment terms.

“We cut out every extra penny,” Pat said. “No new equipment, no vacations. We ate a lot of beans and rice ourselves!”

They looked for new ways to improve profits, like selling value-added products at farmers markets. Over time, their hard work paid off. The farm’s finances improved and they met each payment deadline.

Debt Free at Last

It took some long, difficult years. But 5 years after nearly losing everything, the Smith family made their final payment and celebrated being debt-free!

“I’ll never forget the feeling when we made that last payment,” said Julie. “It was the most incredible relief. We’d done the impossible.”

While the experience was incredibly stressful, the Smiths are grateful they found a way to save the farm. Their children and grandchildren will now have the chance to carry on the family business.

Their story shows that with determination and creativity, it is possible to come back from the brink of bankruptcy. By thoroughly exploring all options, negotiating firmly but fairly, and rigorously sticking to a repayment plan, the Smith family now has a bright financial future.