No matter how long a business has been around or how innovative its ideas were when it first started out, at some point it could face the possibility of going under. At that point, its assets will likely be sold off or divided among creditors in a Chapter 7 bankruptcy or a Chapter 11 bankruptcy.
A large family farm, the second largest community-supported agriculture farm in the country and one of the innovators in organic farming, recently declared bankruptcy. Its assets were only worth $500,000 to $1 million, with overwhelming debt estimated between $1 million and $10 million.
Part of the problem with determining asset value was the business’s status as a farm; much of a farm’s worth is tied up in produce, a highly perishable asset. One creditor has petitioned the court for immediate possession of produce that is in storage, worth as much as $212,000, as well as winter crops that have already been planted, worth as much as $300,000. Only by ensuring these crops are sold immediately, the creditor argues, can their value be preserved.
Although this farm is located in another state, similar situations may arise for farms in Wisconsin. Bankruptcy causes things to grind to a halt, which is perilous for a farm’s healthy functioning. If the farm is survive; however, it will likely have to be under a different name and with a new owner. A business that files for Chapter 7 likely will have to be sold off to pay debts.
Sometimes admitting that a business is failed is not the easy thing to do, but it could be the sane thing to do. It’s not worth toiling under an insurmountable debt load.
Source: The Packer, “UPDATED: Grant Family Farms liquidates; lender wants crops,” Jan. 15, 2013