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.