Debt Relief Consolidation for Farm Owners - By: Kris Koonar

The US government through government-assisted programs provides debt relief for farm owners by restructuring farm loans/debts including writing off agricultural debts partly or fully. Federal agriculture credit policies are geared towards maintaining the agricultural production sector, characterized mainly by small-scale family farms.

In pursuance of its policies, the US Department of Agriculture through its agency The Farmers Home Administration (FmHA) provides financial assistance to farmers who are unable to obtain commercial loans at reasonable terms and interest rates. The FmHA lends financial assistance to farmers through direct loans and loans guaranteed under the Consolidated Rural Farm and Development Act, in short known as the Con Act.

Direct loans are fully funded by the government and guaranteed loans are given through commercial lenders guaranteed up to 90% by the government. For obtaining a guaranteed loan, the lender must issue a certificate stating that it will not make the loan available to the farmer/farm owner without a guarantee. The interest on FmHA loans is subsidized as the loan is given at rates that are below the cost of borrowing. Commercial lenders are paid by the FmHA for lending money on farm loans at rates below their cost of borrowing.

The government wants to help debt-ridden farmers to stay in the business and so offers various options of debt relief. When a borrower is unable to repay his loan, the FmHA restructures the loan allowing the borrower to repay the loan at a lower rate of interest with an extended repayment schedule. As a last resort, the farmer's debt is written off to the extent of the loan in excess of the value of his collateral. For example, if his farmland, machinery etc pledged as collateral is valued at $200,000 with his outstanding debt standing at $475,000, then the FmHA can write off $275,000. If the farmer is able to show that he can make a profit while repaying the balance $200,000, then the FmHA will help him to stay in business by providing fresh loans.

According to a December 1992 report of the United States General Accounting Office (GAO) of the Comptroller General of the United States, the FmHA portfolio in June 1992 comprised of about $16 billion in direct loans and $4.5 billion in guaranteed loans. The report says that in recent times the FmHA provided approx. $7.6 billion against debt relief for delinquent farm loan borrowers. During the previous three to four years, FmHA payout to commercial lenders was to the tune of some $200,000 as coverage for guaranteed loans. In the same period, it reduced farm debts by about $1.2 billion and wrote off another $1.9 billion under the debt servicing provisions of the Agricultural Credit Act of 1987. Another $4.5 billion were written off to settle direct loan obligations of borrowers who were no longer engaged in farming.

When a farm loan borrower's overall debt burden consists of various other debts like credit card dues, personal loans, home loans along with his farm loan, working with a debt consolidation and credit management company would be the best way to manage his debt situation through a suitable debt consolidation plan. These companies provide excellent debt counseling service and have specialist advisers on their panel who are trained to create suitable debt reduction plans and negotiate with lenders on behalf of the borrower. This way they help to reduce the borrower's monthly payments to bring them within manageable limits by securing smaller installments and lower rates of interest. Regular and timely repayments also help to improve credit ratings.

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