The current economic downturn, combined with the drought in the Midwest, has created a serious situation for many California dairy farmers. Many are turning to filing for Chapter 12 bankruptcy in order to try and survive this tough time.

The issue is that with the drought causing the cost of many crops such as corn and soybeans (the main feed for cattle) to skyrocket, farmers are struggling to cover the necessary costs of getting their product to market. The price of corn is 50 percent more than the average price between 2006 and 2011.

When the economy entered a downturn in 2009, many farmers borrowed money to try and survive. Many farmers are unable to keep up on payments for this borrowed money and banks are coming to repossess cows in order to cover their costs. Many farmers have also been forced to file for bankruptcy to prevent this from happening. Smaller farms are steadily shutting down.

Bankruptcy can allow a business to remain open and operating, while preventing creditors from trying to collect. Bankruptcy can immediately stop repossession of property. It also can allow the business time to create a debt reorganization plan, which can give the business a feasible way to pay back creditors. These plans can reduce interest rates and possibly eliminate penalties and fees associated with late or missed payments toward the debt.

Source: The Sacramento Bee, "California dairies caught between falling milk prices, rising feed prices," Max Ehrenfreund, Aug. 12, 2012