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.

 

An Alternative to Bankruptcy for Wisconsin Businesses

When is the last time you heard someone describe bankruptcy as a chance to “wipe your slate clean?” It’s an analogy that is bandied about so frequently by people talking about bankruptcy that people don’t think about the fact that it has been decades since school students actually wiped slates clean.

Aside from being outdated, the expression is also inaccurate. Filing for bankruptcy is not as simple or worry-free as wiping a slate. Bankruptcies are time-consuming and messy, and they carry a stigma that is hard to live down.

Wisconsin companies having financial difficulties have the opportunity to avoid bankruptcy by filing instead for a Wisconsin Statutes Chapter 128 Receivership.

What is a Chapter 128 receivership?

Chapter 128 is a relatively unique program that allows struggling businesses (and individuals actually) to push the pause button on their debts so a plan can be developed to get their financial house back in order.

Receiverships get their name from the fact that a central part of the program is the hiring of a receiver who will oversee the filer’s business.

Once the receivership is established, the receiver is required to take an inventory of all assets and assemble a list of all creditors. Just as in bankruptcy, creditors must prove they have a claim against the estate in order to maintain their right to collect.

After they get an idea of the state of the business, a receiver may operate the business in receivership while a plan for satisfying creditors is worked out, sell the business as a whole, or liquidate the business’s assets and satisfy creditors as the statute provides.

What are the benefits of receiverships?

The most appealing aspect of a Chapter 128 receivership is the fact that it is not a bankruptcy. There is less of a stigma that comes with going into receivership.

Troubled business owners often turn to Chapter 128 when they want to sell their business, particularly when there are lots of bank and creditor claims. The receiver oversees the sale, which gives buyers and creditors more confidence that a clean, fair deal is being reached.

Creditors claims can then be paid off or at least paid down, which the creditors like better than going through the bankruptcy process and risking getting nothing.

While a receivership is in effect, creditors may not collect interest, or attempt to get payment without going through the receiver.

Receiverships are cheaper and quicker than bankruptcies because there are fewer hoops to jump through, and less oversight from the court system.

Different rules regarding preferential transfers apply to receiverships, and that can benefit some businesses.

Who can be a receiver?

Anyone who is a Wisconsin resident can be a receiver. However, smart business owners and creditors will generally want whoever is appointed to be the receiver to have experience with the task they are undertaking, and skills that are relevant to the particular industry the business is involved in.

Passports Can Be Revoked or Denied in Cases of Tax Delinquencies

Can the IRS really revoke your passport because of your tax debt?

Alas, it is true. If you owe the IRS substantial back taxes, the government can keep you from travelling abroad, whether for business or pleasure, by denying you the privilege of a passport or revoking the one you already have. At the end of last year, with little fanfare, Congress enacted H.R.22 which added a new section to the tax code entitled: “Revocation or Denial of Passport in Case of Certain Tax Delinquencies.” 

If you owe the IRS $50,000 or more and are worried and confused about your options, or if you have already received a Notice of Federal Tax Lien, you should consult an experienced and knowledgeable tax debt strategies attorney who will be able to provide you with options and put your mind at rest.

Reasons for the Law

Oddly, the law isn’t designed to deal with offshore accounts, criminal tax cases, or even situations in which the IRS fears you will flee your tax debt by leaving the country. The punishment was not crafted to fit the crime, but simply to make those with large debts to the IRS pay what they owe. The law seems to have been enacted more to solve a cash flow problem than to punish the guilty.

Background

Originally proposed to Congress in 2012, the idea of passport revocation was not, at first, thought to be a good idea. When reconsidered in 2015, however, its possible efficacy somehow seemed more appealing. Congress decided that it was a realistic method of challenging those who had to travel for business, wanted to visit relatives abroad, or simply desired a vacation beyond U.S. borders to pay the price of being American citizens before departing.

Understanding the Law

It is interesting to note that there are two government agencies involved in this debt collection strategy: The State Department and the IRS. The law permits The State Department to revoke, deny or limit passports for anyone the IRS certifies as having a seriously delinquent tax debt of more than $50,000. Theoretically, The State Department will act immediately upon being informed of the tax delinquency by the IRS, though of course in reality the government wheels turn slowly. Still, it is necessary to understand the law so that you will not be surprised to find yourself trapped in your own country because of a tax debt.

While many people feel that the IRS should not have the ability to involve itself in passports, others hold that the threshold of $50,000 ensures the federal government will only be restricting travel of those with substantial tax debt who can, more than likely, afford to pay up. The $50,000 amount, however, includes penalties and interest, both of which, as many of us are aware, can accrue rapidly.

Exceptions to the Law

If you are in the process of contesting a tax bill with the IRS or in the courts, the amount you are being billed is not yet considered a “tax debt.” Moreover, if you have begun the process of reimbursing the IRS with regular payments under an installment agreement, your passport will not be threatened. In addition, if you require your passport for “humanitarian reasons,” the state may grant you a passport in spite of your outstanding debt.

Bankruptcy Filings Decreased in Wisconsin Over the Past Year

The economy is always a hot topic in an election year, but it seems like this has been particularly true in Wisconsin ever since the beginning of the Great Recession back in 2008. There has been a lot of debate about whether our state’s economy is improving or worsening, and which statistics people use to justify their argument often depends on whether their party is in or out of office. If you are looking for more objective information about how our economy is doing, one source you can rely on to be spin-free is the courts.

The Administrative Office of the U.S. Courts has just released its data on the number of bankruptcies filed over the past year, and it appears that Wisconsinites are in a bit better shape this year than last.

During the 12-month period ending June 30, 2016 (which is the end of the fiscal year), there were 17,671 bankruptcies filed in Wisconsin. This includes 414 business-related bankruptcies, and 17,257 non-business bankruptcies. Non-business bankruptcies include personal bankruptcies and most farming-related bankruptcies.

This is an improvement from the previous 12 months, when 19,913 bankruptcies were filed in Wisconsin.

The 11.3% drop in the number of filings suggests Wisconsin residents and businesses are doing better than those across the country as a whole. Across the United States, bankruptcies fell by only 6.9% for the year, and this is the second straight quarter where the rate of decline was less than 10% after consecutive double-digit declines had occurred in every reporting period since December 2011.

The fact that Wisconsin still has double digit declines is a good sign since our state, and the Milwaukee area in particular, was hard hit by the recession. Milwaukee County still leads the state in the number of bankruptcies filed. Of the 17,671 bankruptcies filed in Wisconsin last year, 7,040 were filed in Milwaukee County alone, far outstripping the number filed in any other one county.

Even controlling for population density, Milwaukee County is worrisome. The region as a whole, looks a bit better. Counties in the region saw the following number of bankruptcies filed:

Racine – 734

Ozaukee – 150

Waukesha – 923

Sheboygan – 244

That means as a region, the Milwaukee area had 9,091 or 51.4% of the state’s 17,671 bankruptcies.

As we attempt to draw conclusions about what this data means, it is important to keep in mind 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.

Bankruptcy Court Blocks Sports Authority Bankruptcy Bonuses

How can unsecured creditors protect their interest in a business bankruptcy?

In June, we reported on how the bankruptcy proceedings of Sports Authority would impact a sponsorship contract between the company and the Milwaukee Brewers. The case recently took a curious turn as the company recently revealed plans to pay key, unnamed executives $2.85 million in bonuses. Now, a U.S. bankruptcy judge has blocked the bonuses to four executives for overseeing winding down the sporting goods chain.

The US Trustee and Sport’s Authority’s creditors pushed back against the compensation plan which they deemed to be “outside the course of ordinary business.” They also argued about the secrecy of the payout to the unidentified executives, claiming the bonus program was “quid pro quo” for a deal that will payout $71 million to senior creditors. The company’s position was that the bonuses were an incentive to keep the executives on board and prevent competitors from hiring these key players away.

In these cases, it is not unusual for the court to approve special bonus payments such as an incentive for executives to maximize creditor value. At the same time, these schemes are usually opposed by the trustee when the bonuses are not fully disclosed. In this case, the defunct company did not name the executives involved.

The trustee and the creditors committee argued the bonuses were not performance incentives, but rather a means to circumvent unsecured creditor claims. This is not about protecting morale, they said,  since top management was not in charge of the liquidation proceedings. In sum, the court sided with the trustee and the creditors.

“I think it’s just inappropriate to pay senior executives a bonus when all the employees are losing their jobs,” said Judge Mary Walrath.

While the bankruptcy of Sports Authority is almost a done deal, this case highlights the complexities of creditor claims in a business bankruptcy. The best way for creditors to protect their interests is by engaging the services of an experienced bankruptcy attorney.

A New Way to Fight Back Against Preference Action Claims

Timing is everything. It’s cliché, but it’s so true, especially in the business world. A recent decision from the 7th Circuit Court of Appeals (the federal court between our local Wisconsin courts and the United States Supreme Court) shows just how important timing is when you have done business with a party that has now filed for bankruptcy.

A Little Background

When one of the businesses you sell to files for bankruptcy, your business may end up having to give back some of the money the now bankrupt business has paid you. At first blush, this seems really unfair (Why should you be punished because one of your buyers went bankrupt?), but this is part of the bankruptcy code because the government reasoned that it wasn’t fair for some recent creditors to get paid while others didn’t, especially if making a payment to you was, so to speak, the straw the broke the camel’s back.

This whole process of clawing back payments is known as a preference action, and it applies to payments made within 90 days of bankruptcy.

Thankfully, if you get a “Notice of Bankruptcy Case Filing” letter from one of your customers, there are a few things you can do prepare to defend against any preference action claims. The first and most important thing to do, is to pull together a record of your financial interactions with the bankrupt party.

Having a record of past payments is important because the best defense against a preference action is being able to prove that the payment or payments you received from the bankrupt party within 90 days of their bankruptcy were “made in the ordinary course of business or financial affairs of the debtor and the transferee.”

And this is where the recent 7th Circuit decision comes in. The quote above comes from the bankruptcy statute, but courts across the country have interpreted it in different ways.

What’s New?

In Unsecured Creditors Comm. of Sparrer Sausage Co. v. Jason’s Foods, Inc., No. 15-2356, 2016 WL 3213096 (7th Cir. June 10, 2016), the court clarified how bankruptcy courts in this jurisdiction are supposed to determine if a payment was made in the “ordinary course of business.”

First, the court examines the bankrupt business’s financial records going back to the time it was not having financial difficulty. It then takes all the transactions during the historic period where there was no financial difficulty and compares them to those made in the 90 days before bankruptcy.

If a payment made in the preference action time period is similar to a payment made in the historic period, the creditor can argue that the more recent action was made in the ordinary course of business and does not need to be clawed back.

There are two ways methods the court can use to determine if a preference action period payment is similar to a historic period payment. It can look at the minimum and maximum invoice ages during the historic period and use that as a range. Or, it can average the invoice ages during the historic period and use that number plus a certain number of days on either end as a range.

In Jason’s Foods, the Bankruptcy court used the averaging method, but the 7th Circuit determined that it had made the range too narrow. The higher court tacked a few more days on each side of the range so that 88% of all invoices were considered to have been paid in the ordinary course of business.

This 88% number may end up being a new rule of thumb that businesses can use as a defense when facing a preference action claim because that percentage of claims was also used in a case out in New York that the 7th Circuit referenced in its decision. We’ll have to wait and see if 88% becomes a sort of short cut for determining which payments are ordinary.