Question

In: Accounting

You are the manager of a small bank in the western United States. Your bank loaned...

You are the manager of a small bank in the western United States. Your bank loaned $75,000 to a young farmer to help him purchase a tractor, planter, and harvester for his modest-sized organic vegetable farm. Your bank has a security interest in all of this equipment. Unfortunately, the farmer has fallen behind on payments and is just barely staying out of bankruptcy court. It is time for him to plant new crops and he has begged you to let him keep the equipment to do that. You have the right to seize the collateral, but if you do, he will have no way of generating income and will go bankrupt, losing his farm and other assets. What will you do? Explain your reasoning.

Solutions

Expert Solution

Here the manager has two options

1.He can forfeit the equipment and auction the same.

2.Give the young farmer a chance.

Option 1-Manager has the option to forfeit the equipments, as the bank has security interest in all of young farmer's equipment and auction the equipment, this might not generate good amount as goods are often sold at very low price during auction. This in turn will increase the loss for the bank which a manager would want to avoid.

option 2-This young farmer is not a willful defaulter as the he is young and trying to stay away from bankruptcy court. Due to some reason he might have defaulted on his payments and given chance he might make regular payments which is better than having to go through all the hassle of auctioning the forfeited equipment.If i were the manager in this case i would give him a chance as it's time for him to plant new crops and on a condition that he has to make regular payments from now on. I, as manager of bank would be closely monitoring the farmer.

ekkarill92 answered 2 years ago
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