The following story is based upon a farm reorganization bankruptcy case in Vermont in the 1990s. It not only shows the classic tenacity and resilience of Vermont dairy farmers, but it also shows the compassion and caring of a Vermont farm community and how they cared for their neighbors. These characteristics may well be found in farm communities in other states and are reminiscent of how Amish communities care for their members, but I know from living in Vermont for over a half century – they definitely do represent what I have seen in Vermont communities including some in which I have lived.
The facts as told below may not be exactly accurate as memory is fallible and sometimes a good story needs additional details which may or may not be in the actual record. For that reason, the names of the characters are changed, otherwise, the gist of the story is true. The outcome in the case would not have been possible without both the caring generosity of the farmers’ neighbors as well as the extraordinary relief which is unique to Chapter 12 plans.
This story starts with a small farm which had been in the family for several generations, owned and operated by Bill and Susan. As is typical for small dairy farms, there are good years, bad years and sometimes very bad years when money is tight and difficult decisions must be made.
When Bill and Susan were having a particularly bad year, they were contacted by an in-law, offering financial assistance. At first Bill and Susan refused. They had been through tight times before so they figured they could manage this time. Eventually however, they relented and decided to accept the “help” offered. Prior to providing funds to the farmers, the in-law requested they sign papers which his lawyer needed. They were just a formality, he said. Concerned, but trusting, they signed the papers. The papers turned out to be a promissory note and mortgage secured by the farm, the herd and all equipment. At some point not long after the funds were provided by the in-law, they were reminded about “loan payments”. This took them by surprise as monthly payments were not discussed prior to funds being provided.
The in-law called the promissory note due and pressured Bill and Susan to sell the herd and equipment to satisfy the note. Those sales failed to satisfy the amount due under the note. The in-law’s lawyers commenced foreclosure on the farm.
Few things happen in farm communities that don’t soon become news of the neighborhood and before long the farmers’ neighbors were aware that this family, now with no cows or equipment, were at risk of losing their farm and their home. It would be a gross understatement to say that these events did not sit well with the residents of the community. They got to work trying to figure out how they might be of help to their neighbors.
Before long, Bill and Susan saw a strange sight coming down their road. They saw neighbors driving tractors, towing wagons and bailers, tedders and rakes. There were several trucks, loaded with cows with full udders which would soon need to be milked. “What’s going on here!” they asked. “Well, my barns are pretty full these days and I was hoping you could take some of these cows, put ‘em in your barn and milk them for me” a farmer might say. “But I can’t pay you!” “Don’t have to” just keep ‘em and milk ‘em”. “But I don’t have enough feed!” “Oh, we have a truck with grain coming too.”
And so it went. Before long, Susan and Bill were milking cows, shipping milk again and were getting ready for the next cut of hay. Their neighbors had spared extra tractors, equipment and cows, just to keep their neighbors in business.
When news of this reached the in-law, he was not happy. Even though the farmers offered to start paying him from the new milk proceeds, he refused. He was going to go ahead with the foreclosure. This put the farmers in a difficult position. No matter how well things went on the farm, they would not be able to make enough money to pay off the note. They needed to find a way to stop the foreclosure and turn that mortgage into one that would allow for regular payments over time. One of their neighbors mentioned the name of a bankruptcy lawyer that worked with farmers to save their farms. Seeing no other option, they called the lawyer.
The lawyer explained that there was a new (at that time) bankruptcy chapter geared specifically toward farmers in their predicament, called Chapter 12. Chapter 12 would allow them to stop the foreclosure and propose a plan to pay their creditors. That Plan could also restructure the mortgage so they could make monthly payments they could afford. That sounded good to them, so they filed a reorganization plan under Chapter 12.
Upon hearing of the bankruptcy filing, the in-law lawyered up, hiring a reputable firm to represent him and put an end to this “reorganization”.
At the meeting of creditors, the in-law and his lawyers claimed the case was filed in bad faith, the plan would never work, and the entire case should be dismissed. They rested their argument on the facts that Bill and Susan did not own the cows they were milking or any of the equipment they were using to farm. The trustee asked the farmers some questions about whether they would have to return any of the equipment or the cows. They said they could keep them as long as they needed. The trustee recalled an old expression to the effect “why buy the cow if you are getting the milk for free?” The farmers and their attorney stifled a grin. The in-law and his lawyers were not amused and reiterated their position that the case should be dismissed. The trustee looked at the in-law and his lawyers and asked: “You are saying the plan will fail and the farmers will not be able to make the payments- is that correct?” “Yes, absolutely,” they said.
Looking at the farmers, he asked “are you confident you will be able to make your plan payments?” “Yes”, they said. “We are very confident we can make these payments.”
While the fact that the debtors owned neither the herd they were milking, nor the equipment they were using could have presented a legal issue on confirmation, a contested confirmation hearing would have no doubt required a trial at which numerous neighbors would have testified that the debtors’ could keep the cows and equipment as long as they needed them. Ultimately a trial would be about feasibility.
At the end of the meeting of creditors the trustee proposed an alternative to a trial on feasibility: “It seems to me we could spend a lot of time, court resources and money having a trial to figure out which of you are correct about feasibility. Or we could do this another way. We could agree that if any payments are missed, I would submit to the court an order immediately dismissing the case. That will save everyone money and time and in the meantime the creditor would be getting payments.” After considering the options, the in-law and the farmers decided to go with the trustee’s recommendation. At the hearing, the judge approved the agreement and confirmed the plan with the understanding that if a single payment was missed, the case would be dismissed, freeing the in-law to complete his foreclosure. This proposal gave the debtors an opportunity to show they could make the payments and also protected the secured creditor by saving the costs of a trial and providing for quick and immediate relief in the event even a single payment was missed.
The parties drafted a detailed stipulation to confirmation making very clear that the trustee would be holding a proposed order dismissing the case and that in the event a payment was missed and not cured within a grace period, the trustee would be obligated to submit the order and the case would be dismissed.
Months went by. The farmers’ payments came in each month and the in-law was paid. Some months the farmers struggled to make the payment, but for five years they made each payment. At the end of the five years, the plan was complete and the case ended. As far as I know, the farmers either continued to make the payments to the in-law or refinanced the debt, but they never came back to bankruptcy court.
Over the decades since the events in this story, Vermont has lost over half of its dairy farms. When a farm is lost it’s not just the loss of a family home, or business, it is a piece of a community, both in terms of the natural and human landscape. This story, I believe, is a testament to how special such communities are. Some farmers who give up dairy farming have been able to transition to raising beef and hay and other crops. Chapter 12 has been helpful to farmers in Vermont and across the country in managing difficult times and needed transitions.
In this case it required both a community determined to help their neighbors as well as the opportunity for a fresh start provided by Chapter 12 – specifically the power to propose a plan which “decelerated” a mortgage and provided for payments over a term beyond the five-year plan.
