Pressures of downturn

CLEVELAND, Tenn. -- From her hilltop house built during better times in the 1990s, Deborah Wheatley tearfully looks over four chicken houses and a barn she says she unfairly lost in a foreclosure sale last month.

Ms. Wheatley worries she could lose the rest of her Bradley County farm if conditions don't improve. But after more than 20 years of raising chickens, she vows to fight to save her home and business.

"This farm gave us a good living for many years, and I know it still has tremendous value even though it's much more difficult today than it has ever been," she said.

Hurt by her divorce five years earlier and the bankruptcy of Pilgrim's Pride nearly two years ago, Ms. Wheatley is among a growing number of Tennesseans who seek protection from creditors in the U.S. Bankruptcy Court.

The number of Americans going broke last year jumped by nearly a third to the highest level since Congress revamped the bankruptcy rules in 2005, according to a new yearly report by the U.S. Administrative Office of the Courts.

Bankruptcy filings rose only about half that rate at the Chattanooga office of the U.S. Bankruptcy Court during 2009. But the 17 percent jump in local bankruptcy filings last year still helped to keep the bankruptcy rate in Tennessee and Georgia nearly twice the U.S. average and behind only recession-rocked Nevada during 2009.

"Individuals and businesses are under all sorts of financial pressures because of the loss of jobs and income during this economic downturn," said Juliet Moringiello, a professor of law who studies bankruptcies at the Widener University School of Law in Delaware. "In years past, people could borrow all kinds of money against the value of their homes or property. But they can't do that anymore, so a lot more people are having to file for bankruptcy."

The American Bankruptcy Institute projects the number of bankruptcy filings will continue to rise in 2010 despite signs of an economic recovery. Samuel Gerdano, executive director for the bankruptcy institute, said foreclosures and bankruptcies tend to lag the economic recovery.

"As more families and businesses seek the financial relief of bankruptcy, the filing totals are likely to surpass last year," he said.

During the Great Recession, hardly any industry has been immune from financial woes. Three of the biggest business bankruptcies of all time -- Lehman Bros., General Motors and Chrysler -- reshaped industry from Wall Street to Detroit over the past year and a half. During the same time in Chattanooga, the list of those filing for bankruptcy has included supermarket giant Bi-Lo, car dealer Joe Prebul, Cleveland millionaire Toby McKenzie, commercial insurer U.S. Insurance Co., fabric manufacturer Propex Inc., currency trader Luis H. Rivas and General Growth Properties, which owns Northgate Mall.

Nationwide, business bankruptcies jumped 40 percent during 2009 to the highest level since the 1993 recession.

"We've had a perfect storm of falling real estate values, higher unemployment and tighter credit standards," said Tom Ray, a Chattanooga bankruptcy attorney for the past 39 years. "We had an explosion of consumer and business debt over the past two decades and as we try to wind that down it's going to be very tough for a lot of folks."

Most of the bankrupt businesses restructured their debts under court-supervised reorganization plans and continued operations or went to new owners. Nearly half of the consumer bankruptcy filings in Chattanooga were under court-supervised repayment plans.

A report last week from Moody's Economy.com stated Chattanooga moved from recession to recovery in late 2009.

But with unemployment still averaging above 10 percent in Tennessee and Georgia, bankruptcy attorney Eron Epstein said he is seeing more middle- and upper-income families seeking bankruptcy relief.

"The downsizing in so many businesses has hit all types of workers and I really can't see things slowing down for the next three to five years," said Mr. Epstein, who has practiced bankruptcy law for more than 29 years.

fighting foreclosure

Many of the bankruptcies are filed to help stave off property foreclosures or wage garnishments, especially in Southern states such as Tennessee, Georgia and Alabama where bankruptcy filings remain among the highest in the nation.

Under the protection of the federal bankruptcy court, creditors can't seize assets or garnishee wages without a court-approved plan of liquidation or repayment.

Last year in Chattanooga, 4,309 individuals liquidated their assets to get rid of their debts under a Chapter 11 bankruptcy filing. But nearly as many, 4,132 in Chattanooga last year, filed either a Chapter 12 for farmers or Chapter 13 for consumers to reorganize their repayments schedule under court protection.

But even with more bankruptcies, foreclosures in Hamilton County have still nearly doubled in the past five years. In 2009, property foreclosures rose to a record high of 1,417 homes, businesses and lots, according to the Hamilton County Register of Deeds.

chickens come home to roost

Ms. Wheatley has struggled with both bankruptcy and foreclosure in the past three years.

She got into the poultry industry with her former husband, Frank, in August 1989 and soon filled their 77-acre farm with eight chicken houses and herds of beef cattle and horses. Ms. Wheatley drove a Mercedes convertible, and she and her husband built a 5,600-square-foot farmhouse.

"It was a lot more profitable in those days," Ms. Wheatley said, recalling visits to the farm by former Gov. Don Sundquist, U.S. Rep. Zach Wamp and others. "It's a lot harder and demanding now, and we have to compete against other growers."

Problems began when the couple split and then divorced in 2005. Ms. Wheatley said the farm and house deteriorated when she moved out. Unbeknownst to her, payments from her poultry supplier for growing their chickens were no longer assigned to the repayment of the $1.29 million farm loan the Wheatleys got in 2004 from Farm Credit Services.

In a lawsuit against Farm Credit, Ms. Wheatley claims her name was forged on some documents and she shouldn't have to repay her ex-husband's share of the debt, especially since some additional money was lent to him while the couple was separated. In a complaint filed by attorney John Cavett Jr., Ms. Wheatley charges Farm Credit with fraud, negligence and misrepresentation for telling prospective buyers and chicken suppliers that the farm faced foreclosure when it was under bankruptcy court reorganization.

Ms. Wheatley, who has since remarried, used money from her new husband to clean up her home and refurbish the farm.

Farm Credit denies any wrongdoing. The lender said the claims about improper assignments of money were not included in either of Ms. Wheatley's two Chapter 12 bankruptcy filings and that the statute of limitations prevents her claims from being heard in the court.

Ms. Wheatley also said Pilgrim's Pride, the poultry processor that supplies chickens to hundreds of other area chicken farmers, improperly counted some of her chicken feed delivery. That cut her rating and payments from Pilgrim's Pride.

While under its own Chapter 11 bankruptcy, Pilgrim's Pride also quit delivering as many chickens to Ms. Wheatley on part of her farm when she filed a Chapter 12 bankruptcy petition. Contrary to the bankruptcy order, Ms. Wheatley said some of the payments from Pilgrim's Pride were allocated to pay for delinquent debts to Southeast Poultry, a local propane cooperative, even after Ms. Wheatley's attorney objected.

selling the farm

Ms. Wheatley tried to sell part of her farm to settle much or most of the Farm Credit loan. She said she received offers of between $875,000 and $1.7 million for the back half of the farm. While one of those buyers was still trying to arrange financing, Farm Credit foreclosed on the property and then bought it back for only $490,000. The farm has since sat vacant.

Another Bradley County poultry farmer, Roy Kinsey, said he reached an agreement to buy the back half of the farm for $875,000. But Ag Credit said Mr. Kinsey already had reached his maximum for loan guarantees from his previous farm purchase and declined to finance the proposed purchase.

"I'm still interested in the farm, and I think it could have a good cash flow even at a million-dollar purchase price," Mr. Kinsey said. "I was surprised that Farm Credit went ahead and foreclosed when they knew I had a contract working on trying to buy it."

Ms. Wheatley said she has spent more than $40,000 on attorneys fighting for her rights against Pilgrim's Pride, Farm Credit and the local propane cooperative, which she claims was improperly paid for debts incurred by her ex-husband. Ms. Wheatley plans soon to file her repayment schedule

under her latest Chapter 12 petition.

The colder-than-normal winter and lighter chicken deliveries from Pilgrim's Pride have hurt Ms. Wheatley and most other chicken farmers this winter.

"With all we had to spend on propane and other expenses, we hardly made anything on our last grow out (of chickens)," she said.

But Ms. Wheatley, who calls herself "a proud chicken farmer," isn't about to give up raising chickens. Throughout her three-story home, chickens are printed on her dinnerware, wall hangings and even one of her rugs. Visitors are greeted by a 3-foot chicken model along the driveway.

"This has been a model farm and I know the potential we have with this property," she said. "We're hoping things will get better for Pilgrim's Pride (which emerged from bankruptcy in late December under the ownership of Brazilian beef giant JBS). We need Farm Credit and other lenders to recognize our needs and respect the fact that we help feed the world."