University of Nebraska Extension: “A Checklist for Farm/Ranch Debt Workout”

A recent update from University of Nebraska Extension by J. David Aiken indicated that, “Some Nebraska producers may be feeling a financial crunch and considering some unfamiliar options to manage their debt. For those negotiating a workout agreement with their creditor or creditors to restructure debt under challenging financial circumstances, consider the points to consider and recommendations.”

The extension update pointed to the following suggestions (full details here):

  • Get Outside Financial Advice
  • Consider a Debt-Restructuring Option (“If one objective of your workout agreement is to continue receiving operating credit, the agreement should specify how much annual debt reduction is required in order to qualify for continued operating financing. And you need to be able to reasonably generate sufficient income to meet the annual debt reduction requirements.”)
  • If Adding a Cosigner, There Are Steps To Consider

The update also noted that, “If the workout agreement includes the sale of property or turning property over to creditors, you need to consult with your tax advisor regarding capital gains tax, and debt forgiveness income. Also, if you voluntarily turn property over to the creditor, negotiate for a deficiency judgment waiver so if any unpaid debt remains, that loan deficiency is forgiven.

Negotiating a debt workout agreement is challenging. This checklist can help you work with your financial advisors to assess your options. If you do negotiate a workout agreement, get it in writing and have it reviewed by an attorney before you sign it.”

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