Can States File For Bankruptcy?

The financial pressure of the coronavirus pandemic has forced many families and businesses to consider filing for bankruptcy. It has also sparked a hot debate about the ability of governmental bodies to file for bankruptcy protection. If cities, towns, counties, and school districts are allowed to file for bankruptcy, why not states? 

What Does The Law Saw? 

Right now, the answer to this question is that the bankruptcy law does not apply to states. SInce the late 1930s, federal bankruptcy law has allowed “municipalities” to file for bankruptcy under Chapter 9 of the bankruptcy code. The term “municipality” is defined in the bankruptcy code as a “political subdivision or public agency or instrumentality of a state.” This means cities, townships, school districts, and other government units like sewer and water districts can file, but a state cannot. A state, by definition, cannot be a subdivision, agency, or instrumentality of itself. 

Laws Can Be Changed 

However, Congress could change the bankruptcy code to allow states to file. Policymakers are always tinkering with the code, as we saw last year with the passage of new rules that apply when small businesses file under the new Subchapter V. It is possible that the financial crisis brought on by the COVID-19 pandemic will inspire Congress to pass a new law that allows states to file for bankruptcy. 

Possible, but unlikely. 

As the Council of State Governments points out, “the mere existence of a federal law allowing states to declare bankruptcy would increase interest rates, rattle investors, raise the costs of state government, create more volatility in financial markets, and erode state sovereignty under the 10th Amendment to the U.S. Constitution.” 

Those are some pretty significant downsides. 

Bad For Them, But Good For Me? 

If allowing states to file for bankruptcy is so bad, why are families and businesses encouraged to seek bankruptcy protection? Part of the answer lies in the scale of the issue. A single family or business is not at all equivalent to a state. Comparing the two is like comparing apples and toothpaste. 

From a more practical point of view, the benefits of bankruptcy far outweigh the downsides for families and businesses in financial distress. Bankruptcy offers a fresh start to individuals and families who file under Chapters 7 or 13, and businesses who file under Chapters 7 or 11. While it may be more difficult to access credit post-bankruptcy, and some business opportunities may be out of reach, getting out of a financial hole and back on solid ground is typically worth it. 

Experienced Attorneys Serving The Milwaukee Area

Milwaukee area families and businesses who are facing financial difficulties, and beginning to question what their options are, should not hesitate to make an appointment with one of the experienced bankruptcy attorneys on the Hanson & Payne team. We can offer advice on what options are available, and help find a path forward. 

Why Was The DOJ Involved In The Dean Foods Bankruptcy?

The bankruptcy of Dean Foods, the largest milk processor in the country, was big news in Wisconsin. The dairy giant filed for Chapter 11 bankruptcy last November, and has just recently sold off the remainder of its assets. The liquidation took a bit longer than expected because the federal Department of Justice (DOJ) was concerned that the purchase of certain Dean assets by the Dairy Farmers of America Inc. (DFA) and Prairie Farms Dairy would violate antitrust laws

Dean Foods Bankruptcy

When Dean Foods filed for bankruptcy there was significant concern that some of Wisconsin’s already-hurting dairy farmers would be put out of business themselves if Dean plants in the state shut down. As we have discussed on this blog multiple times, the bankruptcy of one company in a supply chain can often break other links in the chain as well. 

Fortunately, Dean’s now-former plants have stayed open because Dean was able to secure financing to continue operations until it was able to sell off its assets. However, the sale of those assets took a bit longer than expected when the federal Department of Justice (DOJ) and the Wisconsin Attorney General filed a “civil antitrust lawsuit… to block DFA’s proposed acquisition of three fluid milk processing plants from Dean, which are located in northeastern Illinois, Wisconsin, and New England.”  

The DOJ offered to settle the suit on the same day it filed its case if the court would approve Dairy Farmers of America Inc.’s (DFA’s) “divestiture of plants located in Harvard, Illinois; De Pere, Wisconsin; and Franklin, Massachusetts, as well as associated equipment and other assets related to fluid milk production…” The court approved of these terms, and DFA took appropriate action. 

“During its investigation, the [DOJ] also expressed concerns to DFA and Dean about the potential loss of competition if DFA were to acquire a number of Dean’s fluid milk processing plants in the Upper Midwest, and DFA subsequently ceased its efforts to acquire those plants.”

The DOJ also investigated the sale of some other milk processing plants to Prairie Farms, but decided not to oppose those sales because it concluded that the plants in question would probably shut down if Prairie Farms didn’t buy them. 

The DOJ’s interference in this bankruptcy is not unprecedented, but it is somewhat unusual. Most bankruptcy cases do not attract the DOJ’s attention. Those that do are ones where the value of the assets in question is in the millions of dollars, and their sale to a competitor would significantly decrease competition in the marketplace, or even create a monopoly. 

If you are considering filing for bankruptcy, and you are concerned there may be antitrust implications, let’s talk. Hanson & Payne is a business-minded firm that business owners and commercial lenders in Milwaukee and across the state rely on to counsel them and guide them through the bankruptcy process. We would be honored to assist you during your time of need. 

Medical Bankruptcy In The Midst Of A Pandemic

One of the weird things about the COVID-19 pandemic is its impact on our healthcare system. We were all instructed to stay home and flatten the curve so medical providers were not overwhelmed with sick patients. This led to an unanticipated consequence — a financial crisis in the healthcare industry

Many people who would otherwise seek medical treatment stayed home instead. They skipped appointments and relied on Dr. Google to diagnose their ailments. It remains to be seen how this aversion to seeking care is going to impact our nation’s health, but we do know that it has hurt many medical providers. 

Why Medical Bankruptcy Is So Common

Medical debt is one of the leading causes of bankruptcy in this country. Because medical debt is an unsecured debt, meaning the creditor has no collateral they can collect if the debtor defaults, filing for bankruptcy is a popular way for families to deal with overwhelming medical debts. Individuals and families can have most if not all of their medical debt forgiven if they file for Chapter 7 bankruptcy. If they instead file for Chapter 13 bankruptcy, the debt is put on a repayment plan and made more manageable. 

Thanks to the coronavirus crisis, medical providers are now struggling with their own medical debt problems. It turns out a public that is trying to do its part to flatten the curve, and is also afraid of catching the virus if they visit a healthcare facility, stays home instead of visiting the doctor. Most elective procedures have been put on hold, and even seriously sick patients are opting not to receive care. This has put major financial stress on healthcare providers. There is a major cash crunch across the industry that is impacting providers in big cities like Milwaukee to rural clinics up North. 

At Hanson & Payne we have been helping both patients and providers here in Wisconsin tackle their medical debts. 

Right now is a great time for patients struggling with medical debt who are not interested in filing for bankruptcy to talk with an attorney about renegotiating their debt. Providers who are strapped for cash are willing to forgive debts in exchange for a lump sum payment now, even if that payment amounts to pennies on the dollar. 

Providers have faced pushback and bad publicity for attempting to collect medical debts during the pandemic. Since they can’t bring money in this way, and they are not seeing patients, addressing expenses and debts is often the only option left. Our firm helps businesses make these kinds of deals on a regular basis. If more dire action is needed, we can also assist with a bankruptcy filing. 

The Hanson & Payne team is committed to being there for Milwaukee area families and businesses during this challenging time. Our experience representing both creditors and debtors gives us an edge at the negotiation table, and in the courtroom. If you are looking for legal counsel in this challenging time, we would be honored to take your call. Contact us today to schedule an initial consultation.