Agricultural Creditors in Texas Bankruptcy Cases

 Posted on August 29, 2025 in Bankruptcy

In 2022, Texas farms sold $32.2 billion in agricultural products, and the state leads the nation in the number of farms and ranches. The average farm in the state is 544 acres. While cattle farms dominate the state, poultry farms have shown the most significant increase since 2017. The top five Texas commodities in terms of market value are cattle, poultry and eggs, dairy, corn, and cotton.

Texas has a long agricultural history, with family ranches, crop farms, and agribusiness operations. Farmers and ranchers face volatile markets, thanks to the cost of feed, energy prices, droughts, and the fluctuating market prices of crops, beef, dairy, eggs, and chicken. When farmers and ranchers fall into debt, bankruptcy may become necessary.

For creditors, assets such as cattle, crops, and farm equipment may represent the only chance of recovery, yet for the debtor, these are the tools of survival. How the courts treat agricultural creditors during a Texas bankruptcy can determine whether the farm or ranch can stay in business. If your Texas farm or ranch is in financial trouble, it can be beneficial to speak to a knowledgeable Waller County, TX bankruptcy attorney.  

Secured vs. Unsecured Agricultural Creditors

Secured creditors are those lenders who have collateral to back up their loan. That collateral might be in the form of machinery, crops, or cattle. Unsecured creditors are those who provide supplies or services without requiring collateral. Texas law and the Bankruptcy Code prioritize secured creditors, although protections also exist for debtors. Issues pertaining specifically to collateral on farms and ranches include:

Beef Cattle and Dairy 

Ranchers who raise beef cattle, or those with dairy farms, often take out operational bank loans. The lenders may take security interests in the livestock, which is granted by the farmer or rancher (the debtor) to the lender as collateral for a loan, thus lowering the risk for the lender. The most common type of security interest in agriculture is called a Purchase Money Security Interest (PMSI).

To be enforceable, the security interest must attach to the livestock through a contract, and to protect the lender’s claim against other creditors, the security interest must be "perfected" by filing a financing statement. Despite this, there can still be branding and ownership disputes, along with death loss and disease, which reduces collateral value.    

Crops and Harvest Rights

Both planted and harvested crops can be pledged as collateral for a loan. There are seasonal risks, including flooding, drought, and pests that can wipe out the value of the crops. Lenders may file a UCC-1 financing statement to secure the rights to crop proceeds. The question becomes whether creditors can claim collateral in a harvest that does not yet exist during bankruptcy.  

Farm Equipment and Machinery

Tractors, combines, irrigation systems, hay balers, and other equipment often serve as loan collateral. Creditors may argue for repossession versus reorganization due to depreciation and resale value. Bankruptcy courts will weigh whether the equipment is "essential for reorganization" under Chapter 11 or Subchapter V.

Bankruptcy Options for Texas Farmers

Chapter 12 bankruptcy is specifically designed for family farmers to allow repayment plans that are tailored to seasonal income while protecting assets like land, equipment, and livestock. Chapter 11 or Subchapter V is available for larger agribusinesses, and Chapter 7 liquidation, while generally disastrous for a family farm or ranch, may be unavoidable in some situations. Mediation may be able to help avoid costly liquidation for both sides.

Contact a Brazoria County, TX Business Reorganization Lawyer

In Texas, bankruptcy may deal with much more than dollars. It can deal with cattle, crops, and farm machinery. While agricultural creditors will seek to protect their collateral, these same assets can mean the difference between shutting down and surviving for another season.

If you are a Texas rancher or farmer struggling to protect your livelihood, a Brazoria, TX bankruptcy lawyer from The Fealy Law Firm, PC can help you choose the best option for your future. Our focus is on helping good people through hard times. Call 713-526-5220 to schedule your free consultation.