At least one major industry observer has predicted that Chapter 12 farm bankruptcies will increase in 2018.  As such, crop input financers should give enhanced scrutiny to their lending procedures. While many credit applications contain language that grant to the financer a lien in the products provided as well as the crops and proceeds, some do not.  Without such a grant of security signed by the debtor, there is no “attachment”, and, if there is a Chapter 12 bankruptcy, the input financer would, in a Chapter 12, not be treated as a secured creditor.  

Even if there is a security agreement in the loan application or a separate security agreement is signed, without perfection, the lien would not be enforceable against the bankruptcy trustee.  To perfect, input financers should be sure to file a financing statement.  They should be sure to file the financing statement before the debtor receives any of the inputs.  

Not only should they file the financing statement, the financer should also do a UCC lien search to see if there might be a prior lien that can cover inputs, crops or proceeds.  If there is, before extending credit, the financer should consider an inter-creditor agreement with the prior lender to establish how the proceeds of the crop year will be disbursed.  Finally, as always, input providers should continue to put elevator owners on notice of the existence of their liens.