Wisconsin Lawyer Finds Out Not All Debts Are Dischargeable

Getting a fresh start is one of the many benefits of filing for bankruptcy. However, not all debt can be wiped away by the bankruptcy courts. A Wisconsin lawyer just found this out the hard way after an appellate court ruled he is still on the hook for a penalty he was assessed during a disciplinary case

In 2009, Wisconsin lawyer Tim Osicka was disciplined by the Wisconsin Office of Lawyer Regulation (OLR) for “failing both to respond to client grievances and to cooperate with an investigation into his work for those same clients.” This was not the first time such complaints had been levied against Osicka, so the OLR recommended a temporary suspension of his law license and required him to pay $150 to the client he wronged and $12,878.14 to cover the cost of the disciplinary proceeding. 

Osicka appealed to the Wisconsin Supreme Court, which “reduced Osicka’s suspension to a public reprimand but upheld the restitution and the cost order, reducing the number of costs to $12,500.64. When Osicka failed to pay the costs by the prescribed deadline, the State Bar of Wisconsin suspended his license.”

In 2011, Osicka closed his law practice and filed for Chapter 7 bankruptcy

Chapter 7 bankruptcies are known as fresh start bankruptcies because the court wipes away your debt, and you walk away with a clean slate. However, there are certain debts that the bankruptcy court cannot forgive. 

Some common forms of nondischargeable debt are:

  • Tax debts
  • Child support, alimony, or other family support obligations
  • Debts that are tied to a legal judgment like a personal injury lawsuit
  • Student Loan debts, except in cases of undue hardship
  • Fines for violating laws
  • Debts that you forget to include in your bankruptcy application

Osicka assumed that the $12,500.64 he was ordered to pay the OLR was discharged in his Chapter 7 case. However, when he petitioned the Wisconsin Supreme Court for reinstatement to the bar, OLR said it would not recommend reinstatement unless he paid the $12,500.64. 

Osicka appealed, and the case went all the way up to the United States Court of Appeals for the Seventh Circuit. The court determined that federal bankruptcy law prevents the discharge of debts that are a “fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a [particular] tax penalty.”

The court then considered the nature of the $12,500.64 Osicka owed the OLR. Although the amount is tied to the cost of the disciplinary proceeding, the court found that it was imposed as a penalty. Other courts across the country have ruled similarly. 

If Osicka wants his law license back, he is going to have to pay up, despite having filed for bankruptcy. 

This case is a good example of why the Hanson & Payne team always advises our Milwaukee area clients on the pros and cons of filing for bankruptcy and walks them through different possible outcomes. Some debts you might assume will be forgiven won’t be. In other cases, assets our clients thought they would have to give up were saved and used to start over with. 

Bankruptcy law is nuanced and doesn’t always work the way you might expect it to. It is important to contact an experienced bankruptcy attorney like those at Hanson & Payne when you are deciding if bankruptcy is the right option for you.

3 Ways Bankruptcy Could Impact Your Kids

If you are like most parents, you worry about how the choices you make will impact your children. You want what’s best for them, even if it makes your life a bit more difficult. As parents ourselves, we get it. That’s why we are not surprised that many of our Milwaukee area clients ask us how filing for bankruptcy will impact their kids. 

The answer to that question is every lawyer’s favorite answer: it depends. Families in financial distress typically find themselves in a better situation after filing for bankruptcy, which is good for the kids. However, there are a few things you should consider if you have children and are considering filing for personal bankruptcy. Here are X of them. 

  1. Child Support Payments Will Not Be Impacted 

The bankruptcy court is not a family court, and will not make changes to child support payments. If you currently receive payments, you should continue to do so. If you currently make child support payments, you must keep paying. 

Back due child support is not dischargeable in bankruptcy. Debts that are “in the nature of support” — like medical expenses, educational expenses, etc. — are also excluded from the bankruptcy discharge.

If you liquidate assets to pay off debts, your child support obligations will be at the front of the line of creditors. If you file for bankruptcy under Chapter 13, the court will not approve your repayment plan or grant a discharge unless you are current on your payments. 

  1. Your Childrens’ Bank Accounts Are Usually Safe 

If you have opened a bank account in your child’s name, the bankruptcy court may pull any money in that account into the bankruptcy estate and use it to pay off debts. However, you may be able to keep this from happening by using an exemption depending on the amount of money in the account and your available exemptions. It is important to note that transferring money to an account set up in your child’s name shortly before filing for bankruptcy is frowned upon, and the money may be pulled into the bankruptcy estate even if you could otherwise exempt it. 

If your child’s account is an educational savings account created under section 529 of the Internal Revenue Code, the money in that account will not be pulled into the bankruptcy estate. The same goes for money that is being held in trust for your child. So if you are the custodian of a bank account set up under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act, that money is safe because it legally belongs to your child. 

  1. Applying For Student Loans 

You are probably aware that filing for bankruptcy makes it difficult to get access to credit. Parents who know their families will need to take out student loans for their children to go to college are often very worried about the impact bankruptcy might have. 

The good news is your child will not have a bankruptcy on his or her credit report because you filed for bankruptcy while he or she was a minor. He or she can apply for student loans independently, and be judged on his or her own creditworthiness. Your bankruptcy will not impact your child’s ability to obtain need-based financial aid such as Pell Grants and Stafford Loans.

Unfortunately, if your child needs additional funding, you may not be able to qualify for a PLUS Loan or Graduate PLUS Loan to help them. However, depending on your credit history and score, you may not have qualified for these loans anyway. 

Milwaukee Area Bankruptcy Attorneys You Can Trust 

If you’d like to know more about how filing for bankruptcy could affect your children, don’t hesitate to ask one of the experienced attorneys on the Hanson & Payne team. Contact us today to schedule an initial consultation.

Commercial Landlords’ Pandemic Preference Defense

The pandemic has changed a lot of things, and commercial real estate is one of them. Many retail locations are struggling to stay open, and offices are reducing their footprints as workers continue to stay home, but the demand for warehouse space is way up. It is going to take a long time for the industry to get back to the way things were, or adjust to the new normal.

In order to give commercial landlords some flexibility while things shake out, Congress passed a temporary change to the preference defense law as part of the Consolidated Appropriations Act of 2021 (CAA). Over the past year, Hanson & Payne has advised several commercial landlords and lessees in the Milwaukee area who have benefited from this legislation.

An Incentive To Negotiate 

The new law, section 547(j) to the Bankruptcy Code, incentivizes landlords to be flexible and provide payment deferments to their tenants by eliminating the fear that payments eventually made will be clawed back as preferences if the tenant ends up filing for bankruptcy. 

Under Subsection 547(j), the trustee is prevented from recovering the following payments made before the bankruptcy as a preferential payment:

  • “payment of rental arrearages” in connection with an “agreement or arrangement” made between a commercial landlord and tenant on or after March 13, 2020 “to defer or postpone rent and other periodic charges” and
  • “payment of supplier arrearages” in connection with an “agreement or arrangement” made on or after March 13, 2020, between a company and a “supplier of goods or services to defer or postpone the payment of amounts due under an executory contract for goods and services.”

Is It Working? 

These provisions have been in place for around a year now, and we are starting to see them make a difference in the Milwaukee area. They seem to be doing what Congress intended — allowing commercial landlords to work with lessees who are struggling to make payments due to disruptions caused by the pandemic (including supply chain disruptions and shifting consumer behaviors). When lessees do end up filing for bankruptcy, landlords are successfully using this new preference to hold on to the money they were paid in the last few months.

A Temporary Fix

Unless it is extended, this new preference defense is set to expire on December 27, 2022. Landlords need to keep this in mind as they negotiate with struggling lessees. 

It is possible that the expiration date will be extended since the impact of the pandemic is ongoing, but there are no guarantees. 

Landlords should consider what other preference defenses might be available to them, and structure their relationship with troubled tenants in order to take advantage of them. 

Experienced Milwaukee Bankruptcy Attorneys You Can Trust 

Hanson & Payne’s experienced team of bankruptcy attorneys is helping debtors and creditors in the Milwaukee area navigate the financial storm brought on by the pandemic. Our familiarity with the Milwaukee area’s commercial real estate market means we are well suited to assisting landlords and lessees who are in financial distress.  Please contact our office today to schedule an initial consultation.