Ep. 58 Tracking Chapter 12 Bankruptcies in the South: 2015 – 2025 Trends

00;00;00;00 – 00;00;32;03
Dr. Hunter Biram
The southern U.S. accounts for 30% of total chapter 12 bankruptcies across the last ten years. Chapter 12 bankruptcies are up in quarter two in Arkansas, and Arkansas saw the most chapter 12 bankruptcies in quarter two in the country, with Nebraska following close behind. That and so much more on this episode of Morning Coffee and Ag Markets.

00;00;32;05 – 00;00;38;08
Dr. Hunter Biram
I’m your host, Hunter Biram. And today in the studio, I’ve got, Dr. Ryan Loy. How are you, Ryan?

00;00;38;14 – 00;00;40;08
Dr. Ryan Loy
I’m doing well. Hunter. How about yourself?

00;00;40;09 – 00;00;46;14
Dr. Hunter Biram
Doing pretty good. And we’re going to talk about one of your most favorite subjects that you have not done any coverage on.

00;00;46;17 – 00;00;47;00
Dr. Ryan Loy
No. Very little.

00;00;47;18 – 00;01;04;18
Dr. Hunter Biram
No one’s picked this up, you know, no one’s called you for interviews or anything. But, we’re going to talk about bankruptcies, and chapter 12 bankruptcies, because, you know, that’s a big B word. And there are lots of different chapters. Just like in another big B word, a book. There’s lots of different chapters in that book, actually lots of different chapters and in bankruptcies as well.

00;01;04;18 – 00;01;11;18
Dr. Hunter Biram
And so maybe we just start with that, Ryan. Can you talk about chapter 12 bankruptcies and how that differs from other chapters?

00;01;11;20 – 00;01;33;27
Dr. Ryan Loy
So when we’re talking about chapter 12 bankruptcy, the reason that we continuously talk about that chapter of the bankruptcy book is because that is the, the provision that was changed under the U.S. Bankruptcy Code that’s tailored specifically for family farms and fishermen. It was introduced in 1986 during the height of the farm crisis, right? You know, the farm crisis is going on.

00;01;33;27 – 00;01;58;01
Dr. Ryan Loy
The other chapters, 11 and 13 and 7 may not have fit the farms well. So they introduced these provisions to really allow for those qualifying family farmers to restructure their debts while continue to operate their farm. And really kind of the big thing is, is that chapter 12 really allows for a more flexible repayment structure than chapter 11 or 13, and it has a higher debt ceiling in terms of what you can restructure.

00;01;58;01 – 00;02;21;28
Dr. Ryan Loy
So the 13 has a lower debt structure than a 12. And so most family farms can fit under that 12. But really when we’re talking about it, it’s that flexible repayment structure because the cyclical nature of agriculture, right? You know, it’s not like a regular business. So farmers filing under those chapter 12 provisions really face that economic stress due to volatile commodity markets, rising input costs and burdensome debt obligation.

00;02;22;01 – 00;02;29;10
Dr. Ryan Loy
And really these trends in chapter 12 can serve as just one of several indicators of financial stress in the farm sector.

00;02;29;10 – 00;02;36;26
Dr. Hunter Biram
So we talked about chapter 12, how it differs from 11 and 13. Talk about chapter seven, because I think that’s probably what people think of whenever they think about bankruptcy.

00;02;37;00 – 00;02;55;26
Dr. Ryan Loy
Yeah. So chapter seven, different than chapter 12 and 13, which I, which most farms would go to. It’d be pretty rare…. It was actually speaking to one of my banker friends the other day. It’s pretty rare to see a farm in chapter 13, and they would always usually go to chapter 12. But in chapter 7, that’s where you have no way to repay your debts.

00;02;56;02 – 00;03;17;16
Dr. Ryan Loy
You must liquidate. And that’s an agreement between you and your lender in terms of what needs to occur. But chapter seven is full liquidation. You’re not going to maintain any ownership of what you have. You know, you’ll be able to maintain ownership of what you have above what you owe the bank or other debtors. But until then, you have to pay them back under a very strict timeline.

00;03;17;23 – 00;03;22;26
Dr. Ryan Loy
And really, the only way to do that, and the most common way to do that, is just to fully liquidate.

00;03;22;29 – 00;03;29;23
Dr. Hunter Biram
So chapter 12 is all about debt restructuring. Yep. So we’re still going to stay in business. But we might change how we pay back the banker.

00;03;29;23 – 00;03;30;17
Dr. Ryan Loy
That’s exactly right.

00;03;30;17 – 00;03;32;14
Dr. Hunter Biram
And then 7 is literally selling the farm.

00;03;32;14 – 00;03;47;17
Dr. Ryan Loy
Yes. Chapter 7 is selling the farm. That is […] you don’t get a choice to do that. You’re kind of forced into that based on your structure, your repayment capacity, what, you know, and historically what has happened. And so, of course, everybody’s first choice, if they have to go that route would be to go chapter 12.

00;03;47;17 – 00;03;57;16
Dr. Ryan Loy
But sometimes that’s just untenable and they have to go chapter 7 to liquidate and make sure that they pay back those debts, get out from under that. And again at the end, you probably won’t have much on your farm left.

00;03;57;18 – 00;04;07;02
Dr. Hunter Biram
And so last thing on chapter 12, would you say chapter 12 provides maybe a legal safeguard for the farmer to be able to, to have the opportunity to stay in business?

00;04;07;02 – 00;04;31;22
Dr. Ryan Loy
Absolutely. That’s exactly what it’s meant for, is to get those farmers who have to go through chapter 12 in a better financial standing at the end. The whole idea with chapter 12 is, okay, let’s go through this process. Let’s get your debt restructured under a more realistic payment. So, for example, maybe you took on some debt obligations when commodity prices were really good and you were able to pull back, you know, some working capital and pay back your debts.

00;04;31;22 – 00;04;48;11
Dr. Ryan Loy
And everything was going well. But then you’ve had 2 to 3 years of repeated low, very low, commodity prices or maybe even weather that, you know, destroyed some of your crop. And now you’re looking to restructure because you say, I still can. I’ve just had kind of a bad, you know, a bad spell. I can still stay in business and I can still pay back my debts.

00;04;48;17 – 00;04;57;16
Dr. Ryan Loy
So let’s restructure where we’re at with the debt. Let’s, let’s pay those back. And at the outside, I should be able to continue farming and be in a better financial standing than I was before.

00;04;57;18 – 00;05;06;08
Dr. Hunter Biram
Can you talk about working capital ? And so explain what working capital is, and then how that plays into the decision to take on a bankruptcy?

00;05;06;10 – 00;05;26;00
Dr. Ryan Loy
Yeah. So when I always think about working capital, it’s really just the cash you have on hand. That’s always what I think about. That’s really what it is. It’s just cash that you have to come in to help you. Kind of that rainy day fund. That’s a good way to put it to, you know, it’s cash that you have that you want to be able to save for the farm, to invest in other things or to save for emergencies.

00;05;26;00 – 00;05;42;15
Dr. Ryan Loy
And I think, you know, when I’m talking about using the working capital, you know, these last couple years have been pretty tumultuous for agriculture. And so while people may have built up a nice working capital nest egg over the years leading into the pandemic and maybe a couple of years afterwards, they were able to build that up.

00;05;42;15 – 00;06;00;21
Dr. Ryan Loy
But then repeated years of low commodity prices, you know, they could use that as a way to pay back those debts in the short term and pay back themselves later, right? But if you don’t know where it’s coming in terms of support, where export markets are at, where commodity prices are going to end up, it’s difficult to continue that into perpetuity.

00;06;00;21 – 00;06;09;02
Dr. Ryan Loy
And by perpetuity, I mean forever, right? You know, it’s very difficult to do that. You’re going to burn down. You’re going to burn all your money if you’re not putting that same amount or more back in every single time.

00;06;09;04 – 00;06;28;11
Dr. Hunter Biram
So being our finance specialist or finance expert, I mean, as you’re watching all this unfold, how important is it to, I guess, manage your credit? Because I mean, what you’re talking about, I mean, we’re talking about multi-year types of events that are happening and how slowly, you know, get to chip away. You’re working capital and things like that.

00;06;28;11 – 00;06;38;02
Dr. Hunter Biram
So help us understand really how important it is to think long-term with our finances, to be able to try to weather the storm like this.

00;06;38;04 – 00;06;52;24
Dr. Ryan Loy
Yeah. So I mean, one of the major reasons would be that, why would, so I guess, you know, another way to think and correct me if I’m wrong, another way to kind of ask the question is, why would somebody want to use their working capital to really pay back those debts in the short term at the expense of what they could have in their accounts long term, right?

00;06;53;03 – 00;07;12;07
Dr. Ryan Loy
And I think you brought up, exactly right. It’s that credit score and that relationship with their lender. If they’ve built that up over years, just speaking for me personally, I would rather fall on my sword and owe myself than lose and ruin or, you know, kind of bring in issues to a relationship with the lender for lending down the road, right?

00;07;12;07 – 00;07;29;27
Dr. Ryan Loy
I’d rather pay them back first, have a good relationship with them, go through a chapter 12 process that I may have to go through. Where on the back end, I’ve got some real decent, still, credit and relationships behind me. So it’s all, you know, it’s all relationship game. And it’s really important to be sure to, you know, that,

00;07;29;27 – 00;07;45;28
Dr. Ryan Loy
that’s why we see people using that capital in the short term to cover these debts, to say, all right, I’m going to maintain paying back as much as I can. And for as long as I can, such that I can always borrow at a reasonable rate and have a good relationship with my lender and maintain that.

00;07;46;00 – 00;08;00;21
Dr. Hunter Biram
So, you know, in the newsletter, you show that chapter 12 filings peaked in 2020, but fell sharply in 2023 and then rebounded. Now we’re in 2025. What do you think explains that swing and, what’s behind the recent uptick?

00;08;00;24 – 00;08;19;06
Dr. Ryan Loy
That’s a great question. And that’s one of the things I’ve been asking myself through this whole process. You know, the peak in 2020 certainly makes sense. Right? We were going into the first trade war. There was a lot of supply of, you know, every commodity with very, very little to go with it. Right. Plus you add the supply chain hiccups from Covid, just alone.

00;08;19;06 – 00;08;32;00
Dr. Ryan Loy
And then you think about the demand for these things. You know, with Covid going on, is there as big of a demand as there would be in a typical year? And the answer is no. So what ends up happening is that if you’re left with the high supply, you’re going to have, you know, those lower prices, or nowhere to go for it.

00;08;32;00 – 00;08;53;10
Dr. Ryan Loy
And so people were having to kind of, restructure and go through that chapter 12 process during that time. Now subsequently, the years after, you know, 21 and 22, we had a lot more governmental assistance that pandemic related … ERP. Yeah, exactly. PARP, all those things, right? That really helped farmers get to that next year and get to that next year,

00;08;53;10 – 00;09;18;06
Dr. Ryan Loy
right? And then you kind of tie in some better commodity prices in 22 and 23. That really helps, right? And so when you’re looking at that you can say, okay, well it peaked in 2020. We had some government assistance come in. So of course it’s going to kind of bring it back down a lot. But I think what we’re seeing now over the past 2 to 3 years is that governmental assistance from the pandemic, they’ve used a lot of it to this point to get here and it’s running out.

00;09;18;06 – 00;09;58;22
Dr. Ryan Loy
And so what I think we’re seeing is what the numbers would look like in terms of a trajectory had there never been governmental assistance in 21 and 22. And so the question I’m asking myself is, is this just cyclical and back to normal level numbers, you know, considering the governmental assistance in that four year time frame? Or is this kind of a warning sign for something more? When you look at the numbers in terms of the trajectory, not necessarily magnitude, because, you know, in 2015, 2016, leading up to that first trade war, the total United States chapter 12 is were still higher than they currently are right now.

00;09;58;24 – 00;10;23;25
Dr. Ryan Loy
And these numbers that I’m talking about, by the way, just to kind of not to confuse anybody, I’m saying a year, I’m calling it a 12 month period from July 1st of the preceding year to June 30th of the actual year. So if you’re looking at our newsletter and it says 2025, that is going to be from July 1st, 2024 to June 30th, 2025.

00;10;24;01 – 00;10;53;05
Dr. Ryan Loy
And the reason is, is because they release the chapter 12 numbers, for the states and for the country by quarters six weeks after the quarter. So the new quarter numbers quarter 2 2025 just came out last Monday. And so these are brand new numbers. But that’s what I’m meaning by a year. But when you look at these numbers, the trajectory of where they were headed, leading in to that governmental pandemic assistance was kind of the exact same trajectory we’re seeing now.

00;10;53;06 – 00;10;59;25
Dr. Ryan Loy
Now again, the magnitude was more back then, but we didn’t have the same level of governmental assistance then as we do now, or the last few years.

00;11;00;03 – 00;11;20;12
Dr. Hunter Biram
That’s interesting. So you do an analysis of the South. I think you did this for Arkansas, previously. So can you, mention to our listeners who you’re including in the “South” the South region and, you know what factors might explain how maybe one state may have historical high totals and, you know, how does that fit in with, and compare with Arkansas.

00;11;20;15 – 00;11;42;29
Dr. Ryan Loy
So the states that I’m using for the South and what I’m defining is the South, I may I may be upsetting to some people here if they consider themselves as the South, but I didn’t include them. I’m considering, of course Arkansas, Louisiana, Oklahoma, Texas, Mississippi, Alabama, Georgia, Florida, Tennessee and the Carolinas. And so really, I just kind of took Oklahoma on east to the coast and down.

00;11;42;29 – 00;12;06;29
Dr. Ryan Loy
That’s really what I did for this analysis. I didn’t include Kentucky or Missouri or those sorts of things in there, but the South, typically, as you had mentioned over this ten years, really represents about 30%, sometimes about 28, sometimes 32%. But right around that 30% of the total chapter 12s in the United States. And just some kind of some figures and some numbers pulling from this.

00;12;06;29 – 00;12;32;05
Dr. Ryan Loy
You know, Georgia consistently has double digit numbers besides 2024, where most of the states kind of were much lower. Again, they have a lot more resistance. And Texas, of course, but this could be also due to Texas the size and the differences of how diverse production is in Texas. But another one that’s consistently pretty high relative is going to be, Florida and of course, we’ve got ours in Arkansas.

00;12;32;06 – 00;12;56;04
Dr. Ryan Loy
And so the last two years, for that July 1st to June 30th time frame. So the 12 month time frame, the last two years, we’ve had double digits – 15 and 25 respectively. So that’s 25, in the last 12 months for Arkansas. On a quarterly basis, just looking at Arkansas on the quarter, quarter one of 2025, we were at three chapter 12 bankruptcies.

00;12;56;04 – 00;13;15;00
Dr. Ryan Loy
So that would be from the beginning of the year to the end of the first quarter. And then starting on April 1st to June 30th, the second quarter, the numbers that were just released last week, Arkansas is now up to 16, up from three. So really on the year we’re at 19 total. If we’re just looking at the first two quarters of this year.

00;13;15;00 – 00;13;38;24
Dr. Ryan Loy
So not the full year, but just the first two quarters, we’re looking at about 19 total, 16 of those in the last three months alone, which is staggering to me. Now, I was curious about if there was any other state that had been in that same situation, and I really struggled to make sure. And I checked these numbers about 400 million times to just double check that I was not leading anybody down the wrong path on this.

00;13;38;26 – 00;13;47;22
Dr. Ryan Loy
And, you know, when we’re looking at the three month period ending in June 30th for the total chapter twelves. And Hunter, you looked at this too.

00;13;47;24 – 00;13;51;21
Dr. Hunter Biram
I did, I am making my profession. I have looked at this.

00;13;51;24 – 00;14;13;19
Dr. Ryan Loy
We have Arkansas at 16 and no other state is even close to the double digits in terms of chapter twelves. So that means that in the second quarter of this year, Arkansas led the nation in chapter 12 bankruptcies. Second, was Nebraska, and they were at 11 chapter 12 bankruptcies. Interestingly enough, in the first quarter, Nebraska had zero.

00;14;13;19 – 00;14;32;10
Dr. Ryan Loy
So they had a pretty staggering increase there too, to go from 0 to 11. And then for us to go from three in that first quarter to 16 in this next, is really staggering, especially when total chapter 12 is across the United States for that three month period is 93. So 16 of those 93 is attributed just to Arkansas alone.

00;14;32;16 – 00;14;36;23
Dr. Hunter Biram
So that’s big Arkansas leading the way in a category that we don’t want to be leading in.

00;14;36;23 – 00;14;38;11
Dr. Ryan Loy
That’s right.

00;14;38;13 – 00;14;46;05
Dr. Hunter Biram
So can you talk a little bit more about how Georgia historically has actually been pretty high and how this actually seems a little uncharacteristic for Arkansas?

00;14;46;06 – 00;15;05;07
Dr. Ryan Loy
Yeah, it it absolutely does seem uncharacteristic for Arkansas, especially on that quarterly basis. You know, going back ten years, no matter if it’s the first quarter of the second quarter, Arkansas at least had single digit numbers below ten, right? The highest number we had in any of those quarters during that time would have been last year at 6.

00;15;05;10 – 00;15;35;02
Dr. Ryan Loy
But now we at 16. And you mentioned Georgia. Georgia’s always been historically been high. And that’s one of the things that I think you and I kind of chatted about, trying to really understand. Well, why is it that Georgia has such a hard time with the chapter 12 bankruptcies? And I think one of the things is, you know, if we’re looking at crop mix, farm size or capital structure, perhaps Georgia has many, several smaller farms that decided to go through this chapter 12 and they just have a higher number of smaller farms.

00;15;35;04 – 00;15;55;20
Dr. Ryan Loy
I don’t know if that statistic is true. I’m trying to… I’m kind of racking my brain trying to understand it too, because you would think that if, as an example, if Arkansas is increasing or, you know, then the across the South, it would be increasing just because of cost of production alone. And so that’s one of the things we’ve chatted about in terms of, you know, could it be that farm size.

00;15;55;20 – 00;16;18;08
Dr. Ryan Loy
Because that’s one of the things that I don’t know from the US court database that I pull these numbers from. There’s no farm size, there’s no crop mix. I don’t know what these farmers are, you know, what are they growing? They could just be a very small specialty crop farm that just decided rather than selling, they’re just going to restructure and go through a chapter 12. Could be the case, but it’s something that I’m scratching my head on.

00;16;18;10 – 00;16;35;16
Dr. Hunter Biram
So to land the plane here, what are you think, I mean, some areas of further research as we continue to do I mean, obviously this is bad and it’s bad because I mean, we’re talking about farm families here going into this and it’s impacting rural communities. And just really the state and the state’s, plural, across the South and other parts of the country at large.

00;16;35;16 – 00;16;48;17
Dr. Hunter Biram
And so, you know, going into future research, what do you think are a couple things that could contribute to this? Like we don’t know with certainty, but I mean, there are some things that could lead us to believe that something’s driving this increase in the bankruptcies.

00;16;48;17 – 00;17;14;11
Dr. Ryan Loy
Yep. You know, I, if we’re just talking about the South, you know, one of the things I would have wanted to point to if we were making this comparison against the, you know, the Midwest or some other regions in the United States would be just our crop mix. You know, we’re very export heavy in the South and, you know, predominantly row crop in the Delta, in the Mississippi Delta, and with the commodity prices as they are and as they have been in the uncertainty around those export markets, that’s an area for future research

00;17;14;11 – 00;17;38;10
Dr. Ryan Loy
in terms of how much does that impact on farm finances? Another topic that we’ve kind of tossed around that is very interesting is looking at the landlord/tenant structure here in Arkansas compared to the other states. You know, we have very kind of rocky evidence that we, on average, pay significantly more for rental expenses and cash rent expenses than our surrounding states.

00;17;38;10 – 00;18;02;15
Dr. Ryan Loy
But it’s something that I think, you know, kind of warrants further research, because if you look at cost of production and they’re pretty similar in terms of everything but rent and cash rent, and you look at the commodities that are grown very similar, the operators are very similar as well. And so, you know, I don’t think it’s at all a function of poor management on Arkansas’ part, I think it’s just a structure and a culture that, you know, in terms of landlord and tenant, that that warrants further research.

00;18;02;17 – 00;18;21;09
Dr. Hunter Biram
Yeah. You know, as I was telling you earlier, one of my first presentations that I ever gave with Arkansas Extension was at a Farm Bureau meeting. And I’ll never forget this. I was, showing my profit loss tables, and at one point I said, well, you know, and this is December 2022. So, you know, we really weren’t in the thick of it like we are now by any stretch of the imagination.

00;18;21;09 – 00;18;37;29
Dr. Hunter Biram
And we had some government payments, ERP was on the way, things like that. Prices were definitely better then. We were looking at like $15 beans back then, 14 or $15. I mean, times were different. So whenever I gave that talk and I showed profit and loss, I was like, you know, returns look pretty decent. I mean, even at average, a little bit below, you might be okay.

00;18;37;29 – 00;18;51;09
Dr. Hunter Biram
And then I had a farmer speak up, he said, listen, I got a question. Are you putting rent in there? Of course I’m new on the job, been there barely six months. And I’m like, you know, my first response is everybody’s got a different rental agreement. But I said, no, sir. I said, I can put that in there.

00;18;51;09 – 00;19;11;27
Dr. Hunter Biram
He says, I guarantee if you put that rent in there, he said, you’re not going to have any positive returns. And sure enough, that’s one thing that I noticed, especially when you look at like a 75/25 split. I’ve even heard of 70/30, in some cases. Now, I don’t know how widespread it is, but when you’re talking about a, you know, crop like rice or corn, it’s $1,000 to plant the crops, right.

00;19;12;00 – 00;19;30;22
Dr. Hunter Biram
Produce the crop. You know, if you’re doing 25%, that’s $250, right. Our state average cash rents around $150, $160 for crops, you know, for it for irrigated crops. So it matters. And that’s a big line item in terms of production expense. So I think that is a really interesting thought that we should probably look more into.

00;19;30;23 – 00;19;48;02
Dr. Ryan Loy
Absolutely. And especially just looking at the 2022 Census of Agriculture summary that we looked at in the map and the percentage of tenant versus owned land. I mean, that area in the Mississippi Delta in Arkansas was probably the reddest on the map and know the red, the redder the area was the higher percentage of renters in that area.

00;19;48;02 – 00;19;57;20
Dr. Ryan Loy
And so I think that that, when you’re talking about an asset base and what they have, maybe they have a lesser asset base and must go through these sorts of things in order to maintain and stay in business.

00;19;57;22 – 00;20;02;13
Dr. Hunter Biram
Yeah, I think renters are probably the most at risk, absolutely, of making it through this crisis. Right.

00;20;02;20 – 00;20;05;00
Dr. Ryan Loy
Absolutely. No questions for sure.

00;20;05;02 – 00;20;09;13
Dr. Hunter Biram
Yeah. Well, Ryan, thanks for joining me in the studio today. And, are there any other comments?

00;20;09;14 – 00;20;24;24
Dr. Ryan Loy
No, I think that I, if I can leave you with anything is just to, you know, again, these are numbers and this is an interesting discussion to have. But at the end of the day, this is… this means a lot for rural communities. And, you know, farmers, if farmers aren’t doing well, rural communities also by default will struggle as well,

00;20;24;24 – 00;20;33;22
Dr. Ryan Loy
right? You know, and so this is something where, you know, if you’re in those communities just having a conversation with somebody and just talking with people, I think can make things much, much better.

00;20;33;25 – 00;20;37;26
Dr. Hunter Biram
Indeed. Well, Ryan, maybe one of these days, we’ll have something positive and fun to talk about.

00;20;37;27 – 00;20;41;24
Dr. Ryan Loy
Maybe so. Maybe so. Dr. Doom is what you need to introduce me as now.

00;20;41;24 – 00;20;45;13
Dr. Hunter Biram
Well, thank you so much and thanks for tuning in, folks. Stay tuned for the market report. Thanks.