Filing Under Chapter 12: A Lifesaver For Family Farmers & Fishers

Typically when we talk about bankruptcy we are talking about Chapter 7, Chapter 11, or Chapter 13 bankruptcy, but there is another chapter of the bankruptcy code that is important to talk about in a state like Wisconsin where may people farm or fish to support their families. Chapter 12 is a special chapter of the bankruptcy code that was enacted specifically so that “family farmers” and “family fishermen” can file for bankruptcy without losing all their assets and giving up their way of life.

Chapter 12 bankruptcies are like Chapter 11 or Chapter 13 bankruptcies in that the goal is to reorganize operations, and repay debts on a payment plan. However, Chapter 12 is simpler and less expensive to file under than Chapter 11, which was designed with large corporations in mind. But Chapter 12 is also a lot better at dealing with the large debts and less predictable income that characterize family farming and fishing operations than Chapter 13 is.

There are very specific rules governing who qualifies as “family farmers” and “family fishermen.”

If the filer is an individual or a family, they must meet all of the following criteria:

  1. The individual or husband and wife must be engaged in a farming operation or a commercial fishing operation.
  2. The total debts (secured and unsecured) of the operation must not exceed $4,031,575 (if a farming operation) or $1,868,200 (if a commercial fishing operation).
  3. If a family farmer, at least 50%, and if family fisherman at least 80%, of the total debts that are fixed in amount (exclusive of debt for the debtor’s home) must be related to the farming or commercial fishing operation.
  4. More than 50% of the gross income of the individual or the husband and wife for the preceding tax year (or, for family farmers only, for each of the 2nd and 3rd prior tax years) must have come from the farming or commercial fishing operation.

If the filer has structured their operation as a corporation or partnership, they must meet all of these criteria:

  1. More than one-half the outstanding stock or equity in the corporation or partnership must be owned by one family or by one family and its relatives.
  2. The family or the family and its relatives must conduct the farming or commercial fishing operation.
  3. More than 80% of the value of the corporate or partnership assets must be related to the farming or fishing operation.
  4. The total indebtedness of the corporation or partnership must not exceed $4,031,575 (if a farming operation) or $1,868,200 (if a commercial fishing operation).
  5. At least 50% for a farming operation or 80% for a fishing operation of the corporation’s or partnership’s total debts which are fixed in amount (exclusive of debt for one home occupied by a shareholder) must be related to the farming or fishing operation.
  6. If the corporation issues stock, the stock cannot be publicly traded.

Data from the Administrative Office of the Courts shows there were only 40 Chapter 12 bankruptcies filed in Wisconsin last year out of a total of 17,159 bankruptcies filed, so they are relatively rare. However, one high profile Chapter 12 bankruptcy has been in the news. A farmer down in Geneseo, Illinois has filed for Chapter 12 bankruptcy after the farm’s plan to sell high-quality, all-natural meat failed. Some customers are crying fraud, and the Illinois Attorney General has gotten involved, so we are keeping an eye on this case to see if it will impact the law governing Chapter 12 bankruptcies.

Milwaukee Once Again Leads Wisconsin In Bankruptcies

The Administrative Office of the U.S. Courts has just released its data on the number of bankruptcies filed during 2016, and once again Milwaukee leads the state in the number of bankruptcies filed.

17,159 bankruptcies were filed in Wisconsin during 2016, and 6,827 of those were filed in Milwaukee County. It is not surprising that Milwaukee County leads the state in the number of bankruptcies filed since it is also the most populous county in the state, but the number of bankruptcies filed there is still disproportionally high.

As a comparison, consider the number of bankruptcies filed in nearby counties:

Racine – 736

Ozaukee – 147

Waukesha – 856

Sheboygan – 242

A closer look at the Milwaukee bankruptcies reveals that 6,773 of the county’s 6,827 bankruptcies are non-business bankruptcies, meaning they are being filed by individuals or families. This suggests that people in the area are still really struggling to make ends meet despite the fact that the economists stay we are no longer in a recession.

If there is a silver lining to this dark cloud, it is the overall drop in the number of bankruptcies filed in 2016 compared to 2015. This trend carries through Milwaukee County, Wisconsin, and the nation as a whole.

In 2015, there were 7,630 bankruptcies filed in Milwaukee County. In 2016, that number fell to 6,827.

18,793 bankruptcies were filed in Wisconsin in 2015. In 2016, that number fell to 17,159.

Across the country, 794,960 bankruptcies were filed, down from the 844,495 bankruptcy cases filed in the previous year. This is a 5.9 percent drop in filings overall.

According to the Administrative Office of the Courts, this is the lowest number of bankruptcy filings for any calendar year since 2006, and the sixth consecutive calendar year that filings have fallen. However, 2016 was the first calendar year since 2011 that the rate of annual decline was less than 10 percent.

As we attempt to draw conclusions about what this data means, it is important to remember that bankruptcy as a concept is a mixed bag. Having a large number of people file for bankruptcy is not good since it means people and businesses are struggling in the grand scheme of things. But on a more micro level, filing for bankruptcy is like hitting the do-over button. Wiping away old debts and putting people and businesses on a stronger financial foundation so that they can have a second chance to create a good life for their family or start a new business is a good thing.

Should I file for bankruptcy before or after my divorce?

Going through a divorce is a stressful journey on its own. If your divorce is accompanied by financial problems, this stress is compounded. As you go through one of life’s largest hurdles, you may also consider filing for bankruptcy protection.  Not only can this step help protect you from an unscrupulous ex who may run up debt prior to your divorce, but it can also help you make a complete fresh start with less financial worry.

Chapter 7 or Chapter 13 Bankruptcy?

The decision about when to file for bankruptcy depends on a number of factors. The answer will largely depend on whether you want to file under Chapter 7 or Chapter 13. If you qualify for Chapter 7 bankruptcy protection and really want a fresh start, filing before your divorce is a smart option. The process only takes a few months and you can save on filing fees if you file jointly.

If, on the other hand, your joint household income is too high to qualify you for Chapter 7 bankruptcy, then you should decide whether your single income would be low enough to qualify after your divorce, or alternatively, seek Chapter 13 bankruptcy protection.

Income Constraints

In Wisconsin, if the two of you make less than $57,903 and have no children, then you should qualify for Chapter 7 bankruptcy protection before your divorce. If, however, your income exceeds that amount but your single income will be less than $43,958, it would be a good idea to wait until after your divorce to file for Chapter 7 bankruptcy protection.

If your joint and single income amounts are simply too high to qualify for Chapter 7 bankruptcy protection, then you may consider Chapter 13 protect after your divorce. Why after? Because it takes three to five years for a Chapter 13 bankruptcy proceeding to come to a close. Unless you want to continue in your marriage for those extra years, then it would be prudent to wait until after your divorce is finalized to take this next step.

Relationship Status

If you and your spouse qualify for Chapter 7 bankruptcy and are on relatively good terms during the divorce process, filing for bankruptcy before the divorce is finalized can be a good thing. If things are rocky though, your spouse may hinder your efforts to settle your debt situation. You need to be able to depend on your spouse to provide financial documents and appear in court.

Asset Questions

Another big item to watch out for is the distribution of your assets. It is important to talk to your attorney about the implications of a divorce settlement on bankruptcy protection, particularly for assets held jointly.

Thinking About Divorce and Bankruptcy

If you are struggling to meet your financial obligations during your divorce, there are ways to make things easier on yourself. The experienced bankruptcy attorneys at Hanson & Payne provide you with options for seeking bankruptcy protection during a divorce. Contact us today or call (414) 271-4550 for a consultation.

Wisconsin Ranks High In Nationwide Survey Of Credit Scores

How can you improve your credit rating and borrowing power?

A new study of consumer credit scores shows improvement nationwide. In its annual “State of Credit” survey, credit services company Experian reports that the average credit score increased four points since last year, to 673.

Wisconsin scored particularly high marks, with four of its metropolitan areas ranking in the top ten in the country— Green Bay (4th), Wausau (5th), La Crosse (8th) and Madison (10th).

Better Management of Debt by Consumers Played a Role

Modest economic growth and a national unemployment rate of around 5% may have contributed to the slight improvement. While scores have gone up, so has the amount of borrowing. Average credit card balances have increased over $1000 from $4,404 last year to $5,551 this year. Still, better management of debt and payments enabled credit scores to improve overall.

According to Experian, 673 is above average, while 720 to 50 are “prime” scores, and anything beyond, “super prime.” Better scores mean lower interest rates and easier approvals when renting an apartment, signing up for phone services, or engaging in other commercial transactions.

How to Improve or Repair A Poor Credit Score

If your credit score isn’t as high as you would like, there are a number of steps you can take.

  1. Request a free credit report online. These are available from many sites. Check your report for errors and, if you find any, bring them to the attention of the credit agency.
  2. Set up reminders or automatic bill payment to avoid late payments. This can be done usually through your bank’s online payment site or through the sites of companies billing you.
  3. Try to reduce the amount you owe. While difficult, this is will yield many financial and emotional rewards. Short-term strategies, such as transferring balances to a new credit card, will ultimately backfire and worsen your credit rating.
  4. Remember that your credit history stays with you for as long as seven years. Closing your account with a company will not erase records of missed payments or collection attempts.

A Repayment Plan or Personal Bankruptcy May Be an Option

Improving credit is easier said that done. Many people may need professional advice to deal with creditors and devise a payment plan. For some, personal bankruptcy under Chapter 7 of the Bankruptcy Code or a reorganization of debt under Chapter 13 (a so-called “wage earner’s plan”) may be a necessary stage on the path to financial recovery. If you are experiencing difficulties with your credit, an attorney experienced in personal bankruptcy law can help you find the best strategy for eliminating debt and rebuilding your credit.

 

Kansas State to help farmers weather ag economy downturn

How can you weather economic downturns in your life?

No one is immune to economic downturns, whether you’re a warehouse worker or a multi-millionaire. When the economy takes a turn for the worst, it’s important to make adjustments to your life in order to stay ahead of the game.

The same is true for those in the agricultural sector, who are faced with some dismal projections for 2017. Agricultural experts from Kansas State University are providing a series of workshops for farmers who may not be able to make payments on prior farm loans come January 1st. According to the head of Kansas State Department of Agriculture Economics, Allen Featherstone, the goal of the conference is to help farmers avoid bankruptcy by making proactive changes to their operations.

What Options Are Available To Make It Through Personal Economic Downturns?

While either Chapter 7 or Chapter 13 bankruptcies are workable options for most people, many choose to seek out other ways to weather a financial storm.  There are plenty of options out there to help people increase their income or make more income available for living expenses, decrease their debt and deal with creditor harassment.

  1. Negotiate with your creditors. It may sound a bit scary at first, but making financial plan and talking to your creditors directly about what you can do to pay down your debt can be an empowering experience. Having a clear picture of what a realistic repayment plan looks like to you will help you be more confident in your negotiations.
  2. Debt or Credit Counseling. If the thought of speaking to your creditors still has you in a panic, turning to a credit counselor or attorney specializing in debt negotiation might be a good solution for you. Reputable credit counselors will evaluate your financial situation and negotiate with your creditors on your behalf. Since they usually already have a good relationship with your creditors, they can usually get you back into a more comfortable financial position.
  3. Take a budgeting class. Creating a budget and balancing a checkbook are not generally subjects taught to us in school. There are plenty of organizations out there that provide free classes in budgeting and money management. Try searching for “free budget classes” and see what comes up.
  4. Take charge of harassing creditors. Anyone who has experienced financial difficulties understands how creditor harassment can make life unbearable. There are laws that govern exactly how creditors can contact you. Understanding those laws and using them to your advantage can put you in the drivers’ seat and give you some breathing room. Check out the Consumer Financial Protection Bureau to better understand your rights.

Are You Facing a Personal Economic Downturn?

If you are struggling to meet your financial obligations, there are ways to make things easier on yourself. The experienced bankruptcy attorneys at Hanson & Payne can review your situation and provide you with options for weathering a personal economic downturn. Contact us today or call (414) 271-4550 for a consultation.

5 Possible Student Loan, Higher Ed Impacts of a Trump Presidency

What impact might a Trump Presidency have on student loan debt?

During his campaign, President-elect Donald Trump has said little about higher education or the nation’s $1.3 trillion of student debt, which has led to a lot of speculation as to what student borrowers can expect moving forward.

What We Know

Trump has made a few statements about students that warrant discussion, including:

  • Modification of Income-Based Repayment – reducing payments to 12.5% of discretionary income, down from 15%, and remaining balance forgiveness after 15 years.
  • Overhauling the Federal Student Loan System – including removing government from lending and reinstating private student lending as the primary means for obtaining student loans.
  • College-Student Risk Sharing Arrangements – making colleges accountable to students who are unable to repay their student debts and perhaps requiring colleges to repay a portion of any defaulted amount.
  • Deregulation of both nonprofit and for-profit educational institutions – this rollback of President Obama’s gainful employment regulations might affect minimum thresholds for graduates’ debt to income ratios.

There has also been some talk generally amongst the Republican Party about abolishing the Consumer Financial Protection Bureau, which has been working to improve federal and private student loan servicing.

What This Means for Student Loan Borrowers

For those student loan borrowers with existing loans, effects may be minimal. The most direct impact could be from Trump’s proposed IBR modification. If passed, student loan borrowers may have lower monthly payment requirements and loan forgiveness after 15 years, as opposed to the 25 year forgiveness option currently in effect. There has been no talk of changing the treatment of student loan debt in personal bankruptcy.

For those students who have yet to borrow for their higher education expenses, Trump’s impact could be substantial. Aside from seeking to reverse certain consumer protections with the abolishment of the Consumer Financial Protection Bureau, new student loan borrowers may be faced with additional hurdles to obtaining student loans. Trump’s proposal to privatize most student loans will impact the ability of student borrowers with little to no credit to obtain loans for higher education. Additionally, private student loan borrowers will likely be faced with higher interest rates than their government loan counterparts and more restrictive repayment terms.

Again, Trump has made no mention of changing the law regarding student loans and bankruptcy. However, if he is successful in privatizing student loans, and because some private student loans can be discharged in bankruptcy, this might be a positive step for students who become unable to handle their private student loan debt.

Unable to Manage Your Student Loan Debt?

If you are struggling to meet your basic personal needs for your family due to excessive student loan debt, there are ways to make things easier on yourself. The experienced bankruptcy attorneys at Hanson & Payne can review your situation and provide you with options for alleviating your financial situation. Contact us today or call (414) 271-4550 for a consultation.

Relativity Media struggles to come back from bankruptcy

How does a chapter 11 bankruptcy affect your business?

Bankruptcy is often associated with “going out of business sales” and “out of business signs.” The reality is, businesses can file for bankruptcy to develop plans to repay some or all of their debts without necessarily closing up shop.

Relativity Media Emerges from Chapter 11 Bankruptcy

Relativity Media is attempting to do just that. The movie studio sought Chapter 11 bankruptcy protection in July 2015 in order to keep operating while paying off its’ debts.  The company had over $1 billion in liabilities, but only $560 million in assets following a string of bad movies. The company emerged from bankruptcy this past March.

While its’ leader, Ryan Kavanaugh has been working diligently to get Relativity Media out of bankruptcy and into solvency, it’s been a rocky road. According to court documents, Kavanaugh has still been unable to pay vendors and has been forced to sell the company.

Despite these setbacks, there may be a silver lining for Relativity. While the deal is not settled, Singapore social e-commerce company YuuZoo has offered to buy a minority stake in Relativity Media, with an option to become a majority shareholder over the next two years.

It remains to be seen whether the initial investment of $50 million and potential $100 million supplemental investment will be enough to pay off Relativity’s debts. Relativity Media stands at a crossroads between Chapter 7 liquidation and continued operations.

Business Bankruptcy Options

If you find your business is unable to meet its’ financial obligations, you have some options. The most common options, besides closing up shop and hoping the creditors will go away, is Chapter 7 bankruptcy, Chapter 11 bankruptcy and Receiverships.  All have their pros and cons, which we’ve talked about in other posts. Most people understand what Chapter 7 bankruptcies mean, but they don’t clearly understand how a Chapter 11 bankruptcy can affect their business.

How Does Chapter 11 Bankruptcy Affect Your Business?

Filing for protection under Chapter 11 bankruptcy laws enables a business to continue operations while it works out a payment plan with its’ creditors. This payment plan must be approved by the bankruptcy court.

Larger businesses generally have no deadline to file their repayment plan. Smaller businesses may be limited to 300 days after filing to propose their plan.  The business will also have some disclosures to file, which can include:

  • Recent balance sheets
  • Statement of operations
  • Cash flow statement
  • Recent federal tax return

In some chapter 11 cases, creditors may file counter-plans, which usually include liquidating assets. However, if long-term revenues have the potential to be much greater than the value of the business’ assets, they will allow the company to continue operating.

Businesses that have sought chapter 11 bankruptcy protection must maintain operations as usual and cannot sell major property or expand operations without court approval.

Thinking about business bankruptcy?

If you think bankruptcy may be right for your business, the best thing you can do is talk to an experienced bankruptcy attorney. The attorneys at Hanson & Payne can review your situation and provide you with options for moving forward. Contact us today or call (414) 271-4550 for a consultation.

Cosi restaurant parent company seeks buyer

How does the Section 363 Bankruptcy Sale Process Work?

Cosi, a popular Boston-based café with locations across the US, Costa Rica and the United Arab Emirates has recently filed for Chapter 11 bankruptcy relief after closing 29 of their most under-performing locations. After being delisted from the Nasdaq stock market, Cosi is seeking buyers for their currently held assets.

As part of their restructuring efforts, Cosi will be selling its’ assets through what’s known as a section 363 bankruptcy sale.  This type of sale is only available to debtors who have filed for Chapter 11 bankruptcy protection.

Why Choose a Section 363 Bankruptcy Sale?

The section 363 sales process provides a few key benefits to debtors that make it truly worthwhile to file for Chapter 11 bankruptcy protection.  Section 363 sales allow debtors to convert assets to cash through a competitive bidding process, while providing clean title to purchasers.  This enables debtors to get closer to market value for their assets in a short amount of time.

The Basics of a Section 363 Bankruptcy Sale

Section 363 sales are, as you probably guessed, pretty structured.  They start with the identification of a proposed purchaser whose bid will set the minimum floor of the purchase price and will set forth the terms of the transaction. The initial bid is called the “stalking-horse” bid. This, like all subsequent bids, is subject to higher or better offers received by the trustee.  The bid and the terms will be set forth in a formal asset purchase agreement (APA) and the proposed purchaser will be required to wire a deposit, usually 5% – 10% of the bid, to a designated account.

After the APA is signed, all parties will file a motion for two hearings. The first is to seek approval for the proposed bid procedures to be used at auction and to schedule deadlines for competing bids and any objections to the sale.  Things to be settled during this first hearing include:

  • Date, time and location of the public auction
  • Amount and process for providing good-faith deposits
  • Information required to qualify as a “qualified bidder”
  • The amount of the “initial overbid” that must be provided that will be considered higher than the stalking-horse bid.

The second hearing occurs after the auction, where the seller submits the winning bid and seeks approval of the sale and entry of a “sale order.”

As is the case with all bankruptcy proceedings, any sale or action involving assets must be preceded by adequate notice to all parties-in-interest to the case. Interested parties may include:

  • Secured lenders
  • Government agencies
  • Parties to contracts that may be sold or assigned to the purchaser
  • Any committees formed in bankruptcy case
  • Any person expressing an interest in the properties.

The auction is typically held in the office of the debtor’s attorney. Each bidder will have the opportunity to ask questions before the formal auction, which is transcribed by a court reporter.

Once the bidding is concluded, the second hearing is held where the debtor or bankruptcy trustee present to the bankruptcy judge the process that was undertaken to ensure a valid auction.

Need Help?

If your business is struggling financially, there are ways to make things easier on yourself. The experienced bankruptcy attorneys at Hanson & Payne can review your situation and provide you with options for moving forward. Contact us today or call (414) 271-4550 for a consultation.

What types of debts are non-dischargeable in bankruptcy?

Certain debts are non-dischargeable in bankruptcy proceedings. Understanding which debts are non-dischargeable is critical before moving forward with either a Chapter 7 or Chapter 13 bankruptcy.  Domestic support obligations are one category of non-dischargeable debts for purposes of bankruptcy.

One Wisconsin man recently learned the hard way that domestic support obligations can include attorneys’ fees for his ex-spouse. Following protracted litigation with his wife over divorce and custody issues, Christopher Trentadue was ordered to pay his ex-wife’s attorney $25,000. Instead of paying her though, Mr. Trentadue filed for Chapter 13 bankruptcy protection to avoid the debt.

Domestic support obligations (DSOs) are defined in the Bankruptcy Code as being “in the nature of …support…of such spouse, former spouse, or child of the debtor or such child’s parent…”

In re Trentadue

In the case Trentadue v. Gay (In re Trentadue), Mr. Trentadue argued that because the debt was payable to the attorney and not to his ex-wife, that it did not qualify as a domestic support obligation. The Seventh Circuit rejected Trentadue’s argument as to the wrong payee because he had not made the argument in the lower court. However, the court emphasized the intent of the state court in awarding the attorneys’ fees and determined that the ruling was not made as a punishment, but rather, as a means of support to his ex-spouse.

Other Non-Dischargeable Obligations

Regardless of the state you live in, federal laws govern your bankruptcy proceeding. Most exceptions to discharge can be found in 11 U.S.C. Section 523.  Common non-dischargeable obligations include:

  1. Certain tax debts
  2. Child support, alimony, or other family support obligations
  3. Personal injury damages that resulted from a DUI
  4. Student Loan debts, except in cases of undue hardship
  5. Fines for violating laws, including traffic tickets
  6. Debts that you forget to include in your bankruptcy application

Chapter 7 Bankruptcy Special Cases

If you’re filing for Chapter 7 bankruptcy protection, there are certain debts that a judge may determine are non-dischargeable. These can include things like:

  1. Any debt obtained via fraud, embezzlement, or theft.
  2. Debts incurred from malicious injury to another person or their property.
  3. Cash advances from consumer credit over $750 obtained within 70 days of the order for relief.
  4. Debts incurred for luxury items totaling more than $500 within 90 days before the order for relief.

Thinking About Bankruptcy?

Bankruptcy can provide a fresh start, but it’s best not to make it a DIY project. Consulting with a skilled bankruptcy attorney can make a significant difference in the outcome of your case. The award-winning bankruptcy attorneys of Hanson & Payne can easily assess your financial situation and provide expert guidance on what your options are. Contact us today or call (414) 271-4550 for a consultation.

 

Here Are Three Of Donald Trump’s Full Bankruptcy Filings

What can other people find about my bankruptcy?

Like most people, Donald Trump wants to keep his financial records private.  While Mr. Trump’s finances may or may not have implications on public policy matters, ordinary people like you and me can generally remain anonymous when it comes to our P&L statements and net worth.  That is, until we file for bankruptcy.

Trump Company Bankruptcies

Despite Mr. Trump’s attempts to shield his financial information, BuzzFeed recently got ahold of the bankruptcy filings for three of Trump’s companies. These mid-1990’s filings have shed some light on the $916 million loss reflected in a portion of Mr. Trump’s financial documents published by the New York Times.

Bankruptcy Filings Are Public Records

Some may be surprised by the fact that hundreds of pages of financial documents and court records have been made available online for all to see. The truth is, bankruptcies are a matter of public record and are available to anyone who knows where to look.

While most people know that a personal bankruptcy like Chapter 7 or Chapter 13 bankruptcies will appear on your credit report, they don’t know that almost all of the documents that you filed with the court are also available to those who want to know. The easiest way for people to get ahold of your bankruptcy filings is through a site called PACER (short for Public Access to Court Electronic Records).

What Information Can People See?

Essentially, anyone who looks up your bankruptcy in PACER can see all of the documents filed with the court, with sensitive information like social security numbers and financial account numbers blocked out.  This means that people can see how much money you had in your bank accounts at that time, what assets you had and what debts you had incurred.

Additionally, in every bankruptcy proceeding, there is what’s known as a 341 Meeting where creditors may show up and contest the dissolution of the debt.  These are public meetings that anyone may attend.

Finally, your name may appear in your local newspaper in the public notices section at some point during your bankruptcy process.  If you live in a town where the local government publishes these public notices on a special channel, then your name may appear on TV as well.

How Likely Is My Information To Get Out?

For people not in the public eye, it is highly unlikely that others will actively seek out your bankruptcy information. Some exceptions include employers who may need to do background checks on their employees and landlords who want to better understand the financial situation of their tenants.  While some background checks merely include surface information like the fact that you did file for bankruptcy, if people want to go deeper and know where to look, they can gain access to your entire filing.

In reality, most people file for bankruptcy in relative anonymity.

Having an experienced bankruptcy attorney on your side can help minimize exposure down the road. If you have questions about your financial situation, contact Hanson & Payne today at 414-271-4550.