Is Johnson & Johnson Bankrupt?

Over the past decade, Johnson & Johnson has faced thousands of lawsuits over its well-known baby powder. The liability risk the company faces is so large, it is using the bankruptcy system to protect itself. However, the Bandaid maker is not going out of business. And it is not close to running out of money. Instead, it is using the bankruptcy system to resolve all the baby powder lawsuits filed against it. The Hanson & Payne team is keeping a close eye on this legal maneuver because it could have an impact on the broader business bankruptcy system

Bankruptcy As A Bandaid

Johnson & Johnson is one of the largest and most successful pharmaceutical companies in the world. It has a market cap of $430 billion, and $25 billion cash on hand. It is nowhere close to bankruptcy. And yet, it has filed for it. 

J&J is spinning off a new company that is built to go bankrupt. It is doing so in order to deal with the 38,000+ lawsuits filed against it by people, mostly women, claiming the company’s baby powder causes cancer. J&J already paid $2.5 billion to about 20 women making similar claims earlier this year. It is uncertain how much the additional 38,000+ lawsuits could cost. That’s where bankruptcy comes in. 

All of J&J’s baby powder assets and liabilities, plus a large chunk of cash have been dumped into a company called LTL Management. Almost immediately after its creation, LTL filed for Chapter 11 bankruptcy. Under bankruptcy rules, LTL can temporarily pause all the lawsuits filed against it, and work on a way to settle them by setting up a bankruptcy trust. This is a tactic that has been used by other companies, but this is on a much larger scale. 

Bankruptcy Is A Tool, Not A Weapon 

The Hanson & Payne team is watching the J&J/LTL bankruptcy case to see what happens. If the courts approve this legal maneuver, we may be seeing more cases where bankruptcy is used to forge large-scale settlements in the future. 

This case has the benefit of showing businesses how useful bankruptcy can be, and perhaps helping to destigmatize it, which would be a good thing. On the other hand, if lots of cases like this are filed going forward, it could bog down bankruptcy courts that already struggle under a hefty caseload. 

Milwaukee area businesses who are looking at this case, looking at lawsuits pending against them, and wondering if bankruptcy may be a way out, should proceed with caution. As the Hanson & Payne team frequently reminds everyone, bankruptcy is a tool, not a weapon or a magic wand. Bankruptcy is not something that businesses can rely on to resolve every lawsuit, no matter what happens in the J&J case. 

Business owners in the Milwaukee area who are facing unknown liability, or mounting legal debt, are welcome to reach out to Hanson & Payne’s experienced team of bankruptcy attorneys for advice. Typically, the sooner an issue is addressed, the more options are available for resolving it, so please contact us today. 

Too Rich To Go Bankrupt

Filing for Chapter 7 bankruptcy is the lifeline many Wisconsin residents need to keep their heads above water. Wiping out debts and getting a fresh start can be a real lifesaver. However, there are rules that prevent people who have income over a certain level from filing for Chapter 7 bankruptcy. Although it sounds hard to believe, you can be too rich to go bankrupt even if you are drowning in debt. 

Chapter 7 Means Test

Debtors who want to file under Chapter 7 must pass a means test before the court will allow their case to proceed. The means test is a government-designed set of factors that measures a filer’s income, expenses, and family size to determine whether it thinks the filer has enough disposable income to repay his or her debts.

There are two parts to the test. 

The first part looks at a filer’s annual household income. If the filer’s household median income is lower than the average median income in Wisconsin for a household of the same size, the debtor passes the means test and may file for Chapter 7 bankruptcy. 

All household income is used to calculate current monthly income. Even though your spouse may not be filing bankruptcy with you, you must include your spouse’s income when calculating the Means Test. The only income you are not required to include is income from Social Security retirement, SSI, or SSDI. If you are a Hanson & Payne client, this is not something you will have to figure out on your own. Our team will help you gather the information needed to calculate your average income, and pull the data on other Wisconsin families to compare it with. 

If you do not automatically pass the means test on the first step, you move on to the second step. The second part of the means test involves taking a closer look at your disposable income. Your disposable income is the money left over each month after paying living expenses like housing, utilities, food, clothing, child care, and transportation expenses. If your disposable income is negative or very low, you may pass the means test and be able to file under Chapter 7. 

Once again, if you are a Hanson & Payne client, our experienced team of bankruptcy attorneys will help you through the means-testing process. This is not something you need to figure out on your own. 

What Happens If I Fail The Means Test? 

If you fail the means test and are unable to file for bankruptcy under Chapter 7, you may still get some relief through the bankruptcy system. Chapter 13 of the bankruptcy code is a court-supervised repayment plan that is designed to help debtors who fail the means test reorganize their finances and make progress towards paying off their debts. 

Experienced Milwaukee Bankruptcy Attorneys You Can Trust

If you are interested in filing for bankruptcy, the Hanson & Payne team is here for you. Our experienced bankruptcy attorneys help Milwaukee area residents who want to file for bankruptcy figure out if they are eligible to file under Chapter 7 and then move forward from there. We work hand in hand with our clients, so they do not have to figure out things like the means test on their own. Please contact us today to schedule an initial consultation. 

Tax Debt Sticks Around Even After Bankruptcy

There are certain kinds of debt that you can’t get rid of, even by filing for bankruptcy. The money you owe someone because of a lawsuit, student loan debt, and delinquent child support payments are some examples. Filing for bankruptcy won’t wipe it out like it does other kinds of debt. 

Tax debt is another type of debt that typically cannot be discharged through bankruptcy. However, there are other things you can do to reduce the amount of tax debt you owe if you are struggling to pay it back. The attorneys at Hanson & Payne regularly assist Milwaukee area businesses and families take control of their tax debts. 

Income Tax Debt 

We said tax debt cannot typically be discharged through bankruptcy because there is one type of tax debt that you may be able to get wiped out. The Internal Revenue Service (IRS) will allow a bankruptcy court to discharge or wipe out old income tax debt if the following conditions are met:

  • You must have filed your tax returns.  Income tax debt is not dischargeable if you did not file a tax return in the years the debt you would like forgiven is from. 
  • The debt is at least three years old. Income tax debts will not be forgiven if the debt is less than three years old. The IRS generally expects newer debt to be paid off. 
  • The 240-day rule. The IRS must have assessed the tax — notified you of it, and officially noted it in its records — at least 240 days before you filed for bankruptcy.  
  • You aren’t trying to cheat the system. If you tried some sort of tax evasion scheme, the government is not going to forgive your debts in bankruptcy court. 
  • Keep paying your taxes. Be sure to file your tax returns and pay all taxes that come due while your bankruptcy case is pending. The bankruptcy court may dismiss your case if you do not keep up with your taxes.

If you are not sure if your tax debt meets the conditions, don’t be discouraged. The Hanson & Payne team can help you figure out if it would be appropriate to ask the bankruptcy court to forgive your income tax debt. You are not in this alone. 

Offers In Compromise 

If you have other tax debt, whether personal or business-related, filing for bankruptcy isn’t going to get rid of it. If you cannot afford to pay it off, your best option may be asking the IRS to accept an offer in compromise. 

An agreement between a taxpayer and the IRS that settles a taxpayer’s tax liabilities for less than the full amount owed is formally known as an offer in compromise (OIC). There are three circumstances in which the IRS will agree to an OIC: 

  • First, the IRS can accept a compromise if there is a genuine dispute as to the existence or amount of the correct tax debt under the law. This happens when nobody knows what the actual amount of debt is, and everyone can agree to something reasonable.
  • Second, the IRS can accept a compromise if there’s doubt as to the collectibility of the debt. When the taxpayer’s assets and income are less than the full amount of the tax liability, so the government knows they will never be able to collect the full amount, they will consider an OIC. 
  • Third, the IRS can accept a compromise based on effective tax administration. In these cases, there’s no doubt that the tax is legally owed and that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.

Some of the companies that advertise tax debt relief make it sound like meeting one of these conditions, and persuading the IRS to accept your offer in compromise is a piece of cake. The reality is the IRS rejects most OICs.  

The IRS will take a close look at your finances and estimate what it calls your reasonable collection potential (RCP). They don’t disclose this number, but it is the amount they believe they can reasonably expect to collect from you given your financial circumstances. If you submit an OIC that is well below the RCP, you will not get anywhere. 

Hanson & Payne’s experienced attorneys can help you estimate your RCP and put together a detailed and complete OIC. We are happy to work on this with your accountant or other financial or business advisors. 

Get The Help You Need To Get Tax Debt Relief 

If you are burdened by a tax debt you know you will never be able to pay off, Hanson & Payne’s experienced team of attorneys may be able to help. We push the bankruptcy courts to forgive as much old income tax debt as they can, and work with Milwaukee area debtors to persuade the IRS to reduce their other debts through an offer in compromise. Please contact us today to schedule an initial consultation.