How Does Increasing Inflation Affect Bankruptcy Filings?

Inflation is rising faster than it has at any time during the past 40 years. The Federal Reserve is attempting to tap the brakes by raising interest rates, but prices are continuing to climb. 

There are a few different ways this may impact bankruptcy filings in the Milwaukee area and beyond. 

Does Inflation Hurt Or Help Borrowers And Lenders? 

Inflation generally hurts everyone. That is why it makes everyone so anxious, and why the government is so keen to slow its rise. 

It hurts borrowers who cannot afford to make payments on their debt because their income has not kept pace with inflation. These borrowers must spend more of their income on necessities like food and housing instead of paying off debts. If this persists, it can lead to higher default rates, which hurt lenders. 

Lenders must also contend with the fact that the money they are owed is now worth less than it was when they lent it out. Raising interest rates can help with this, but many loans are fixed-rate, with rates lower than inflation. This is a benefit to borrowers, but only those that can still afford to make their loan payments. 

Changes To The Law

Aside from impacting borrowers and lenders, inflation changes the law itself. 

Federal law mandates that the Judicial Conference update the Bankruptcy Code every three years by increasing the dollar amounts referenced in the law to keep up with inflation. April 1, 2022 was the latest increase, and it was a big one. Dollar amounts increased by close to 11%. The last time rates were increased, they rose by only 6.2%.

Some of the dollar amounts that increased include: 

  • debt limits for individual who wants to file bankruptcy under Chapter 13
  • the means test limits for individuals who want to file under Chapter 7 instead of Chapter 13
  • the debt limits for filing under the relatively new “Subchapter V” of Chapter 11, which is used by small business owners 

These dollar amounts are important because they help debtors figure out which chapter of the bankruptcy code to file under. Which chapter of the code then determines how their assets are treated by the court. 

Another amount that increased is the amount of property that an individual debtor or family may exempt and keep if they file for personal bankruptcy. Exemptions can be used to protect a family’s home, car, personal belongings, or retirement accounts from being liquidated by the bankruptcy courts. Increasing the exemption amount is a good thing for debtors. 

A Milwaukee Area Bankruptcy Attorney You Can Trust 

Rising inflation puts Wisconsin families, businesses, and lenders in a tough spot. It can be difficult to know how to move forward when every path seems dangerous. Hanson & Payne, LLC’s experienced team of bankruptcy attorneys are here to guide anyone who needs help navigating difficult financial situations, and determining what options are available to them. Please contact us to schedule a meeting.

Bankruptcy & Death: Two Complex Areas Of The Law

The intersection between bankruptcy and death is complex since it involves two very different areas of the law. Hanson & Payne’s experienced team of bankruptcy attorneys is here to assist Milwaukee area residents, businesses, and lenders who are navigating this difficult set of circumstances.

There are two main ways a bankruptcy proceeding can be impacted by a death. The first is if someone who has filed for bankruptcy dies while their case is pending. The second is when someone who has filed for bankruptcy inherits money while their case is pending. In this blog post, we will cover a few things it is important to understand about both of these scenarios. 

What Happens When Someone Who Filed For Bankruptcy Passes Away? 

The French philosopher Michel Eyquem de Montaigne wrote that “Death, they say, acquits us of all obligations.” This observation is proven true in the bankruptcy courts. 

When someone who has filed for bankruptcy passes away while their bankruptcy case is pending, the bankruptcy case must be closed before the deceased person’s estate can be probated. Depending on how much debt there is, and which chapter of the bankruptcy code the case was filed under, this can take awhile. 

For cases filed under Chapter 7, the bankruptcy court will work with the deceased person’s personal representative to process the case pretty much as they would if the debtor had not died. Available assets are liquidated, and the proceeds are used to pay off creditors. Assets that were exempt from bankruptcy are then distributed according to the deceased person’s estate plan, or the laws of intestacy if he or she had no will in place. 

Chapter 13 bankruptcies are years-long, court-supervised repayment plans. If a Chapter 13 filer passes away while his or her case is ongoing, the deceased person’s personal representative can ask the bankruptcy court to: 

  • See the Chapter 13 case through then allow the personal representative to administer the estate as normal;
  • Convert the Chapter 13 case into a Chapter 7 case and proceed as discussed above; or 
  • Dismiss the Chapter 13 case and allow the personal representative to administer the estate as normal.

The bankruptcy judge will decide what the best path forward is for everyone involved. 

The big thing to take away from all of this is that heirs cannot touch their loved one’s assets until the bankruptcy case is closed. This is obviously very frustrating, and can seem unfair, but the courts try to process these cases quickly so family members can grieve their loved one. 

What If Someone Inherits Assets While Going Through Bankruptcy? 

The other situation where a death can dramatically impact a bankruptcy proceeding occurs when a debtor inherits assets after filing for bankruptcy. If the death occurs within 180 days of the bankruptcy filing, the inheritance may be pulled into the bankruptcy case.

In a Chapter 7 case, the inherited assets may be liquidated and the proceeds used to pay off creditors. In a Chapter 13 bankruptcy, the inherited assets may be used to calculate how much money the debtor must pay the court each month of his or her supervised repayment plan. 

Milwaukee Area Bankruptcy Attorneys You Can Trust 

It is rare, but not unusual, for a death to impact a bankruptcy filing. The overlap of these challenging and emotionally fraught areas of law can be overwhelming. Hanson & Payne, LLC’s experienced team of bankruptcy attorneys would be honored to assist you if you find yourself in this situation. Please contact us to schedule a meeting.

Is Kohl’s Going To File For Bankruptcy?

If you asked a Magic 8 Ball whether Kohl’s is going to go bankrupt, it would probably say “Reply hazy, try again.” Nobody can divine if the Wisconsin-based retailer is headed toward bankruptcy, or will find some other way to survive in a challenging market. As Milwaukee area bankruptcy attorneys who do a lot of work for businesses and commercial lenders, the Hanson & Payne team is keeping a close eye on what happens at Kohl’s. 

Cannot Predict Now

The company that grew into what is now the largest department store chain in America, was founded in Milwaukee in 1927. Polish immigrant Maxwell Kohl opened a small grocery store, and when it proved successful, expanded until Kohl’s Food Stores was the largest supermarket chain in the Milwaukee area. The first department store run by the chain was opened in Brookfield in 1962, and the company went public in 1992. 

The chain, which is now headquartered in Menomonee Falls, is the largest department store chain in the nation. It has locations in every state except Hawaii and continues to grow. However, it is growing at a much slower rate than in the past and has been losing market share to competitors. Activist investors are pressuring company leadership to make some changes to increase the company’s value. 

Concentrate And Ask Again

Last year, the company added new members to its board of directors. 

In March, Kohl’s announced plans to add Sephora mini-shops to roughly 75% of its 1,100 US stores, open 100 new locations at half the size of its traditional outlets in the next four years and increase its popular Kohl’s Cash rewards program to 7.5% on purchases, up from 5%.

“Kohl’s is undergoing a significant transformation of our business model and brand to be the retailer of choice for the Active and Casual lifestyle. We have fundamentally restructured our business to drive sustainable and profitable growth while providing a strong return to shareholders,” said Michelle Gass, Kohl’s chief executive officer.

Now, it is being reported that over 25 other companies are vying to buy Kohl’s outright, including arch-rival JCPenney. JCPenney’s offer values Kohl’s at $8.6 billion.

Better Not Tell You Now

It is interesting that Kohl’s is planning on making some big changes, and does not appear to want to file for bankruptcy in order to do so. Filing for bankruptcy is a common tactic retailers resort to when it is time for them to re-tool. 

Filing for bankruptcy under Chapter 11 means a business can:

  • Reject and renegotiate the unfavorable lease and other contract terms
  • Renegotiate terms of secured financing, including interest rates
  • Negotiate new credit terms with critical trade creditors and suppliers while repaying old payables over an extended period of time
  • And even put a pause on litigation

It is a way to get flexibility and make major changes without going out of business. 

Ask Again Later

At Hanson & Payne, LLC, we help Milwaukee area businesses and commercial lenders navigate the bankruptcy process. We work hard to ensure that our clients’ interests are protected because we believe bankruptcy is a tool and not a torment. Please contact us today if we can be of assistance.