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The reality is that dramatic declines in prices and values did occur, and did so rapidly and unexpectedly.
In the course of such representations, I learned many lessons—mostly the hard way. Because the future is hard to predict, prudent financial practices are always essential to avoid future problems.Normally, before filing bankruptcy a farmer wants to engage in planning and negotiations with creditors first; unfortunately, in this hypothetical the Farmer waits too long and ends up filing bankruptcy in a “fire, ready, aim” mode, rather than in a pre-bankruptcy planning and negotiations mode.Accordingly, when financial stress first arises, a farmer needs to take immediate action to fully understand what is causing the stress and what tools (Chapter 11 and Chapter 12 possibilities) might be used to deal with the stress. Some excessive debt is incurred by unwarranted spending: back in the 1980s, for example, when many Chapter 11 non-farm cases began to be filed, it seemed that ownership of an airplane had to be a requirement for filing Chapter 11 because every set of Chapter 11 bankruptcy schedules, it seemed, listed an airplane as an asset.Back in the late 1970s and early 1980s, many farmers, had they known what would happen, would never have purchased that high-price land on credit with little-money-down. Deferred tax obligations can create serious financial problems.Then, in the mid-to-late 1980s, many farmers, had they known that prices of farm land were bottoming out and beginning a rise to great heights, would have bought-up everything available. A common 1980s hypothetical is this: Farmer inherits a farm from parents in 1960 at a stepped-up tax basis and expects to pass the farm on to the next generation at another stepped-up tax basis, but values increase dramatically (along with borrowings against the farm), and Farmer buys and depreciates many buildings and items of machinery and equipment—then the Farm Crisis intervenes and results in liquidation of Farmer’s assets, leaving Farmer with a tax liability far beyond anything Farmer could ever afford to pay.