The aircraft landing gear collapsed during a forced landing after an engine failure. The aircraft had climbed to 1000 ft AGL after takeoff when the pilot switched the fuel selector to the right fuel tank. Immediately the engine quit and switching back to the left tank did not help. The pilot in the right seat took over and made a forced landing which was hard enough to collapse the landing gear. The two front seat occupants received serious back injuries from the landing. Post accident examination of the aircraft showed water in the carburetor and in both main tanks along with rust and sediment. The aircraft was refueled from a tank on their farm which was also contaminated with water, rust and sediment. The filters in the system would not prevent water from coming out the dispensing nozzle and the filters were replaced only once a year. The filters are not designed to stop water. The farm supply tank had sat outdoors prior to being filled.