Farms and Agricultural Businesses: 6 Reviews of MCA Debt, Crop Timing, and FSA Loans

If your farm has a cash flow mismatch - the funder draws every day, you don’t get paid until the crop sells - the proper approach is a six part review.

• One, can you reset the advance repayment so it matches the farm’s cash flow?
• Two, is there a confession of judgment in the contract?
• Three, can the FSA offer an operating loan?
• Four, can the FSA offer an emergency loan?
• Five, can the FSA rework an existing loan?
• And six, can you try Chapter 12 as a last resort if you fall further behind?

If you get all your cash from the sale of crops, you have to have cash to grow the crop before the crop generates cash. Where you see a daily withdrawal from your account, the creditor sees a loan that will eventually be repaid, at a profit. Fixed daily pulls are a poor fit for a farm’s cash flows, and they ignore income seasonality. In January 2025 the New York Attorney General won a $1.065 billion judgment against Yellowstone Capital for collecting fixed amounts regardless of income. First, can you adjust or reduce the fixed advance repayment amount so it better matches your cash flow? If yes, that’s the simplest answer.

Second, ask whether you signed a confession of judgment. Since August 30, 2019, New York CPLR 3218 bars confessions against debtors who neither live nor do business in New York. The funder may have a confession of judgment, but be unable to enforce it.

FSA Direct Loan

The third thing to consider is whether you can replace the MCA and the debt it now holds with an FSA operating loan. An FSA operating loan can be used to pay for normal farm operating expenses, equipment purchases, and minor repairs to real estate - it can also be used to refinance existing debt if you meet FSA eligibility rules. The FSA annual operating loan is timed to fit farm harvests. The rule of thumb is this loan should be repaid within 12 months, or when you sell the crop the loan financed. The FSA offers direct loans up to a maximum of $400,000 at a 5.375% rate as of October 1, 2026.

The fourth thing to consider is whether you are eligible for an FSA emergency loan. If you have actual production or physical losses from a designated disaster, the FSA can make an emergency loan. The maximum loan is $500,000. You must submit your application within 8 months of the disaster declaration date.

Fifth, if you already have an FSA direct loan, and it is at least 90 days past due, the FSA will mail you a servicing packet telling you that you can ask for debt rescheduling, reamortization, consolidation, deferral, or write-down. You need to return the FSA servicing application within 60 days to be considered for debt restructuring.

Chapter 12 for Family Farms

If you cannot find another way to get back on track, consider Chapter 12 bankruptcy, which is specifically for family farms and has seasonal income flexibility. The farm cannot have more than $12,562,250 in total debt. To qualify as an individual, more than 50% of your gross income for the past year must have come from farming and at least 50% of your total fixed debts must be from farming. A family-owned corporation or partnership running the farm can also qualify. Chapter 12 for family farms is simpler and cheaper than Chapter 11, which suits larger companies. Chapter 13 was written for wage earners with smaller debts.

Filing a bankruptcy petition stops most collection actions immediately. You must file a repayment plan either at filing, or within 90 days after that, and repayment will normally be scheduled over three years and not more than five. You do not have to repay all unsecured debts in full in a Chapter 12; they must receive at least the amount they would receive in Chapter 7.

You have to go to credit counseling with an approved agency within 180 days before you file. Between 21 and 35 days after filing you have to attend a meeting of creditors, where you answer questions about your finances and business practices. Finally you have a confirmation hearing, where the court decides whether to approve your proposed repayment plan.

A trustee administers Chapter 12 and collects regular payments from you, then pays your creditors according to your repayment plan. The payment plan may keep some debts - such as a farm equipment loan or mortgage - on their original repayment plan, assuming that arrears are caught up in the plan. You need to consult the trustee before you incur any major new debt. If you get into Chapter 12, you have to live on a fixed budget for years, and missing payments can cause the court to dismiss the case. And remember that the discharge does not come until all plan payments are made. If you cannot finish a Chapter 12 plan due to circumstances beyond your control, you may be able to get a hardship discharge. The court will do this only if creditors get at least what Chapter 7 liquidation would pay, and you cannot modify your plan.

Time Matters

There are lots of ways to straighten out a bad debt that is out of sync with farm cash flows, but time matters. If you get the FSA servicing packet, make sure you return it within 60 days. After a designated disaster, you have to apply for an FSA emergency loan within 8 months of the declaration. In Chapter 12 you need to file a payment plan within 90 days after you file the case.

If you cannot reset the repayment schedule so it matches your farm’s cash flow, explore whether the FSA can lend you money to get you back on track. If FSA cannot help, consider bankruptcy under Chapter 12. If you have gotten out of sync with your debts, the time to review your options is before harvest money runs out.