Will Bankruptcy Allow PG&E to Shirk Responsibility for the Camp Fire?

Last fall, the “Camp Fire” burned over 150,000 acres of land and killed 85 people in Northern California. Although investigators have determined how the fire was started, it is unclear whether the responsible party will be brought to justice. The reason why? They have declared bankruptcy. 

The Fire

Like most other Wisconsinites, who are not accustomed to seeing such horrors in our part of the country, the attorneys in our office were shocked by the news reports and viral video clips from the Camp Fire. Walls of flame devoured everything in their path — including many people who were trapped in their cars. It is still sickening to think of. 

Investigators determined the fire was caused by electrical transmission lines owned and operated by Pacific Gas and Electricity (PG&E). On the hook for billions of dollars in damage, the utility company filed for Chapter 11 bankruptcy protection

The Bankruptcy 

When PG&E filed for bankruptcy, it became the largest utility to ever do so. The company is reportedly over $50 billion in debt, not counting the amount it will owe to victims of the Camp Fire under California’s strict fire liability laws. 

When a company is facing this sort of massive, unknown liability, bankruptcy is often the best option — for everyone involved. Why? Our bankruptcy laws require that every creditor be paid if at all possible, while at the same time allowing the business to move forward. 

Perhaps fire victims will not be paid back for 100% of their losses, but allowing PG&E to restructure and continue operating rather than shutting down will ensure they get something.

It is likely that the bankruptcy court will estimate the fire damages, direct PG&E to come up with some percentage of that amount, then require victims to make claims on that fund while barring future lawsuits. 

Not Shirking Their Duty

Companies who file for bankruptcy in the face of lawsuits are not shirking their responsibility to the public. They are taking advantage of the law to create some certainty in an uncertain situation. Filing for bankruptcy hits pause on all other litigation involving the company and pulls some lawsuits into the bankruptcy process. 

Knowing a defendant is bankrupt, or will be if a major verdict comes down against them, incentivizes the potential plaintiffs to negotiate a solution that will allow all plaintiffs — instead of just the first to file — to get some sort of compensation. There’s probably not enough money to compensate everyone fully, especially if the company has lots of other debt, but the bankruptcy process ensures victims are treated fairly and equally. 

It will be interesting to see how the PG&E case moves forward since the amounts at stake are so large. It may also set the precedent for future cases across the country where a man-made natural disaster wreaks havoc. We will be keeping a close eye on it. 

If your business is facing legal debts that may drive it into bankruptcy, Hanson & Payne LLC is ready to advise you and guide you through the process. Contact us today to schedule an initial consultation.

Choosing State or Federal Bankruptcy Exemptions

Wisconsin Bankruptcy

When you file for bankruptcy, you can protect certain property from sale to satisfy your creditors. You do this by classifying the property as “exempt,” meaning it is exempt from the reach of creditors. If you are filing for bankruptcy in Wisconsin, you have the ability to choose whether you want to claim state or federal bankruptcy exemptions. Wisconsin is one of the few states that allows for this and it can be a huge advantage should you weigh out your options and choose wisely.

Choosing State or Federal Bankruptcy Exemptions

With Chapter 13 bankruptcy, you get to retain both exempt and nonexempt property. You will be responsible for paying back property value to your creditors through an established payment plan executed over several years. With Chapter 7 bankruptcy, however, the bankruptcy trustee has the authority to sell the property to satisfy creditors. Property that is eligible to be sold to benefit creditors is called “nonexempt.” “Exempt” property will be protected from sale.

Additionally, if you file Chapter 13 bankruptcy, exemptions can be used in order to reduce the amount of money that you will be required to pay to satisfy your unsecured creditors. If you are concerned about losing specific property in bankruptcy proceedings, there are several strategies you may employ to protect it. One such strategy is through the use of exemptions. In Wisconsin, you not only can choose some property as exempt, but you can choose between the Wisconsin exemption scheme and the federal exemption scheme. The schemes differ in several key respects. Choosing the one that best protects your assets is important. You must choose one scheme or the other. You cannot pick and choose from both the Wisconsin and federal exemption schemes.

Some of the more notable exemptions for those choosing the Wisconsin state scheme include:

  • $75,000 homestead exemption
  • $4,000 motor vehicle exemption
  • $12,000 consumer goods exemption
  • $5,000 savings and checking accounts exemption

These amounts double if you are married and are jointly filing for bankruptcy with your spouse. This is also true for the amounts of notable exemptions in the federal state, which include:

  • $22,975 homestead exemption
  • $3,675 motor vehicle exemption
  • $12,250 household goods exemption
  • $1,225 exemption applicable to anything you own (referred to as the “wild card” exemption

Also, under both schemes, most retirement accounts are fully protected.

Wisconsin Bankruptcy Attorneys Protecting Your Best Interests

You can get through bankruptcy without losing everything. The fact that Wisconsin allows you to choose between federal and state exemptions is a big advantage and it is a significant decision to make, one of many that will present itself in the bankruptcy process. Hanson & Payne, LLC will help you evaluate your options and make sure you are choosing the scheme that maximizes property protection benefits in your individual case. Let our knowledgeable bankruptcy attorneys protect your best interests as you move forward through the bankruptcy process. Contact us today.

Cram What? The Bankruptcy Tool With The Weird Name

Have you ever tried to give a cat a pill? It’s not a pleasant task. You have to pry open its jaws, cram the pill down the poor thing’s throat, then cross your fingers and hope it doesn’t decide to cough it up and force you to start the process all over. 

Now, imagine the cat is a creditor watching one of its debtors go through the Chapter 13 bankruptcy process. They want to get paid back for the money they have loaned out. They don’t want the debt they are owed to be forgiven or renegotiated. So sometimes the court has to cram a solution favoring the debtor down the creditor’s throat. 

Section 1129(b) of the Bankruptcy Code outlines what has become known as the cramdown process for the way it is crammed down the throats of creditors. It allows a Chapter 13 bankruptcy court to reduce the amount of an outstanding loan to match the value of the property securing it. 

What debt can be crammed down? 

Only certain types of debt can be crammed down. The biggest restriction is that the debt must be secured debt. A secured debt is a debt that is tied to a piece of real estate or personal property — like a car or a piece of furniture — that can be repossessed by the creditor if the debtor fails to repay his or her debts. 

The law further restricts cramdowns by preventing the courts from cramming down the mortgage on the debtor’s primary residence. Mortgages on investment properties may be crammed down, but only if the debtor can repay the debt fully during the 3 to 5 year Chapter 13 process. 

Loans on personal property — things that can be owned other than real estate —- can all be crammed down if they were purchased more than a year before the debtor filed for bankruptcy. It is common to cramdown loans on household goods like appliances and furniture. 

The most common type of cramdown is a bit harder to get, and that is a cramdown on a car loan. Other than a home, a car is the most expensive item most people will ever purchase. In order to prevent debtors from buying a car, and then cramming the loan down as the vehicle’s value drops, the cramdown law says car loans cannot be crammed down unless the car was purchased over 910 days prior to the bankruptcy filing. This works out to around 2 ½ years. 

An example of this bankruptcy tool

This is probably easier to understand with a little example. Say there is a debtor who has filed for Chapter 13 bankruptcy, and this is what they owe and how much that same property is actually worth:

  • Primary Residence worth $300,000 with a $450,000 mortgage
  • Rental Property worth $200,000 with a $250,000 mortgage
  • Furniture purchased 2 years ago, now worth $500, with a $1200 loan
  • 5-month-old dishwasher worth $200 with a $500 loan
  • Car 1, purchased 5 years ago, worth $7,000 with a $10,000 loan
  • Car 2, worth $25,000, purchased last year with a $30,000 loan

If the court does a cramdown, the following debts will remain: 

  • The mortgage on the primary residence cannot be crammed down.
  • The mortgage on the rental property may be crammed down to $200,000 if the debtor can pay off that amount during the Chapter 13 process. 
  • The furniture was purchased more than a year ago, so the loan can be crammed down to $500.
  • The dishwasher was purchased less than a year ago, so the loan cannot be crammed down. 
  • Car 1 was purchased more than 910 days ago, so the loan can be crammed down to $7,000.
  • Car 2 was purchased too close to the date of the bankruptcy filing to cramdown the loan. 

Another Tool In The Bankruptcy Toolbox

Cramdowns are another tool in the court’s bankruptcy toolbox. Working with an experienced Milwaukee bankruptcy attorney will ensure that the cramdown process is properly navigated by both creditors and debtors. 

Creditors Beware: Attempting To Collect After A Discharge Could Get You In Big Trouble

Although bankruptcy law is federal law, very few bankruptcy cases make it up to the Supreme Court. So, it is notable that the Justices delivered a unanimous decision in a bankruptcy case near the end of the court term that ended in June. In Taggart v. Lorenzen, the High Court made it clear that creditors who attempt to collect a debt after one has been granted a discharge will find themselves in big trouble. 

Taggert v. Lorenzen

Taggart v. Lorenzen is a complex case, as most cases that make their way up to the highest court are. If you are curious about the underlying facts, you can check out this summary from Oyez, or this one from SCOTUSblog. It is the court’s holding that we are going to talk about. 

In an opinion authored by Justice Breyer, the Court held that creditors who try to collect a debt after a discharge can be sanctioned for contempt of court not only if they knew what they were doing was wrong, but also if there was “no objectively reasonable basis” of their understanding of the discharge order or the statutes that govern its scope. 

This ruling has important implications because there are many circumstances where debts survive a bankruptcy discharge and can still be collected. When a debt survives, the creditor may try to collect it, and that is okay. But if a debt has been discharged, the creditor must write it off, and should not, under any circumstances, try to collect. The problem is there are a lot of debts in the gray area that may or may not be discharged, depending on the circumstances. 

A creditor who is owed a debt that may still exist needs to be extra careful and ensure the debt was not discharged before it makes any attempt to collect. Otherwise, the creditor may be found in civil contempt, which means they can be fined by the court. 

Creditors who want to collect debts owed by a person or entity that has filed for bankruptcy would be wise to consult with an experienced bankruptcy attorney. The accuracy of the advice you take could make the difference between collecting a debt and getting charged a hefty and embarrassing fine. 

Contact Our Milwaukee Bankruptcy Lawyer

Our firm has years of experience helping both creditors and debtors navigate the bankruptcy system, so we are in a good position to advise our clients even in tricky gray-area situations. 

Judge Rejects Shopko’s Bankruptcy Plan

On January 16th, Wisconsin based retail chain Shopko filed for chapter 11 bankruptcy. The company reported having less than $1 billion in assets with outstanding liabilities, running somewhere between $1 billion and $10 billion. As part of bankruptcy proceedings, the U.S. Bankruptcy court had Shopko officials, along with creditors, attorneys and other consultants, draft a bankruptcy plan and submit it to the court for approval. Despite most relevant parties expressing approval for the plan, as well as U.S. Bankruptcy Court Judge Thomas Saladino supporting the effort drafting the plan, Judge Saladino had to ultimately reject it.

Why Was Shopko’s Bankruptcy Plan Rejected?

Under the plan submitted to Judge Saladino, all of Shopko’s bank debt would have been paid off by July. Additionally, the majority of administrative claims would have been paid and a $15.5 million payback from Sun Capital would have been secured. On top of all this, there may have been some money left over to pay some of the unsecured creditors. Why then was this bankruptcy plan rejected by the court? One of the major creditors, McKesson Corporation, told the judge that it had civil fraud claims against no less than four Shopko executives. The plan would have banned all potential claims against Shopko.

McKesson Corp. explained to the bankruptcy court that Shopko executives made false promises in order to keep medication supplies coming to Shopko pharmacies for as long as possible. Shopko never paid for these supplies and McKesson asserts that Shopko owes the company close to $70 million. Although the amount has since been reduced, McKesson maintains that Shopko still owes them $55 million. Furthermore, McKesson alleges that Shopko executives are using the bankruptcy plan to avoid being sued for fraud in Wisconsin. Wisconsin is the company’s state headquarters. Shopko counters by saying McKesson Corp. is being spiteful in holding up the otherwise supported bankruptcy plan.

What are Shopko’s options?

At this point, Shopko has several options in how to proceed. The company may opt to submit another plan. Right now, Shopko has the exclusive right to submit a plan, but this is only for a limited time. If they fail to submit a plan for approval, other parties of the case, including McKesson, could submit their own proposed plans.

Shopko may also want to consider converting the proceedings from chapter 11 bankruptcy to chapter 7. With chapter 11 bankruptcy, there is still a chance that the company could reorganize and continue moving forward. Under chapter 7 bankruptcy, the court would appoint a trustee that would assume control of the company from the executives. Judge Saladino left the decision of how to proceed up to Shopko.

Trusted Bankruptcy Attorneys

No matter your reason for considering bankruptcy, the road ahead may be difficult. There will be countless questions and concerns that will arise. The dedicated Milwaukee bankruptcy attorneys at Hanson & Payne are here to answer your questions and support you throughout the bankruptcy process. Contact us today.

What Is Replevin? Rare Car Stolen From A Milwaukee Man Provides An Unusual But Perfect Example

“Replevin” is the epitome of legalese. It’s Latin mixed with French. It’s not used in everyday conversation. But it is often thrown around in bankruptcy cases as if everyone knows exactly what it means.

The truth is most people don’t know what it is.

So what is replevin? According to the Merriam-Webster Dictionary, replevin is “an action originating in common law and now largely codified by which a plaintiff having a right in personal property which is claimed to be wrongfully taken or detained by the defendant seeks to recover possession of the property and sometimes to obtain damages for the wrongful detention.”

Breaking this definition down is helpful. It’s a legal action. It is brought by a plaintiff who believes the defendant has wrongfully taken (stolen) or detained (failed to return) a piece of personal property (which means any sort of thing, but not land). The plaintiff wants the property back, and may also want paid for the hassle.

Right now, there is an unusual case pending in the Wisconsin Supreme Court that provides a good example of how a replevin action actually works.

In 2001, thieves broke into the old Monarch Plastic Products factory on Milwaukee’s lower east side and stole a disassembled French sports car that its elderly owner had been trying to restore since 1967. The car, a 1938 Talbot Lago T150 C teardrop coupe, was worth around $7 million.

Not only was the car stolen, so were all the documents and spare parts related to it. Other valuable items in the factory-turned-garage were not touched. There was no sign of a forced entry, but in a sinister turn of events the phone lines to the owner’s house were cut the same day the car was stolen.

In 2005, the car’s owner passed away. He left his entire estate, including the rights to the stolen car, to his cousin, Richard “Skip” Mueller. A few years later, Mueller sold a majority share of the right to own the car to Joseph L. Ford III, who has experience tracking down rare stolen cars.

Then things went quiet, and it seemed like the car was gone forever. But in 2016, the authorities alerted Mueller and Ford that someone was trying to title a now completely restored Talbot with the same chassis number in Illinois!

Mueller and Ford demanded the return of the stolen car, but the man who had purchased it, Rick Workman, refused. Workman claims he had no idea the car was stolen. He purchased it in good faith from a Europen dealer.

So in February 2017, Mueller and Ford filed a replevin action against the company Workman used to purchase the car, TL90108, LLC.

It’s a case that fits the definition of replevin to a T. Mueller and Ford, the plaintiffs, are the rightful owners of a piece of personal property, the Talbot. They are suing the defendant, TL90108, LLC, for the return of the vehicle.

Unfortunately, this case is not as simple as the definition of replevin makes it sound. Wisconsin has a six year statute of limitations in replevin cases. A replevin action must be filed within six years from when the property was first “converted” aka stolen or wrongfully detained.

Mueller and Ford think the countdown clock should have started when they demanded Workman return the car and he refused. Workman says the clock had already run out by that time because it started the day the car was stolen.

It is unclear who is right, so the Wisconsin Supreme Court has agreed to hear this case and decide when the statute of limitations clock starts ticking in a replevin case. Our firm represents clients in replevin cases, so we are keeping a close eye on this case.

Does Declaring Bankruptcy Eliminate Tax Debt?

“…in this world nothing can be said to be certain, except death and taxes.”

— Benjamin Franklin

This quip of Franklin’s is a lasting reminder that Uncle Sam always takes his cut. It was true at the close of the American Revolution, and it remains true now. Not even filing for bankruptcy can help you avoid paying most taxes.

You said “most…”

Whether you can wipe out tax debts by filing for bankruptcy depends on the type of taxes you owe and the type of bankruptcy you file.

Chapter 7

If you are an individual who is eligible to file for bankruptcy under Chapter 7 of the bankruptcy code, you may be able to get past due federal income taxes forgiven. Other taxes, like state level taxes or payroll taxes cannot be discharged.

In order to have your federal income tax debt discharged, you must be able to show:

  • You did not commit fraud or willfully evade paying your taxes.
  • The debt is at least three years old.
  • You filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy.
  • The income tax debt was assessed by the IRS at least 240 days before you filed your bankruptcy petition, or was not assessed before you filed. This is known as the “240-day rule.”

Our firm’s experienced bankruptcy attorneys can help you determine if you meet these criteria, and if not, what other options are available to you.

Chapter 11 & Chapter 13

If you don’t qualify for a Chapter 7 bankruptcy, or you are filing on behalf of a business, whether your tax debt is dischargeable is a much more complicated question that can’t be easily summarized in a blog post. If this is the situation you are in, the Hanson & Payne team would be happy to meet with you and advise you.

Other Options

If you are struggling to pay off tax debt, and that is what is pushing you toward bankruptcy, there may be another path you can take.

The IRS is often willing to enter into a repayment plan with taxpayers that cannot afford to pay off all their tax debt in one fell swoop. If you think you can eventually pay off your taxes, this can be a great option. You may, however, still be on the hook for late fees and interest.

If you do not believe you will be able to pay off all of your tax debt, but you could pay off a significant chunk of it right now, or over time, you may want to make what is known as an offer in compromise. This is an agreement to pay a lower amount now instead of the full amount later. The IRS is open to this when it believes the amount you are offering is as much as it can reasonably expect to collect over time. To put it another way, the IRS fears you will not pay up in full, so it will take what it can get.

Get the help you need.

Bankruptcy law and tax law are both complicated. We recommend contacting an experienced bankruptcy law firm if you are even remotely considering filing for bankruptcy because of your tax debt.

Industry Shifts Leading to Bankruptcy

Shifts in industries can often lead to major changes. Supply goes up, demand goes down, other factors come in, and an industry changes as a result. Sometimes, these shifts can cause things like widespread bankruptcy among industry participants. Sometimes, the string of bankruptcy is limited to a specific region. For example, the Wisconsin frac sand industry is in the midst of a major downturn. For a number of reasons, major producers of frac sand in the state are facing closure and bankruptcy.

Wisconsin Frac Sand Producer Faces Bankruptcy as Industry Shifts

Between 2010 and 2015, the frac sand mining industry in Wisconsin rapidly expanded. The state’s plentiful silica sand reserves were a natural draw for mining companies and processing plants. The Department of Natural Resources reports that there 128 frac sand facilities in Wisconsin, but this number may start lowering rapidly. In recent years, frac sand mines have begun popping up closer to the Texas oil fields making things easier for the local drilling costs. The oil drilling companies could get the Texas frac sand for much cheaper because they did not have to pay the shipping costs associated with bringing it in from Wisconsin. While the demand for frac sand, which is used in drilling for oil, is hitting all time highs, the demand for Wisconsin frac sand continues to dwindle. The drop in demand for Wisconsin frac sand led to plummeting prices for the commodity.

The pressure being placed on Wisconsin frac sand producers is already evident in record numbers of SEC filings. The bankruptcy filings are beginning. Recently, Emerge Energy Services LP, the owner of Superior Silica Sands, a major frac sand mining company operating in Wisconsin, is facing bankruptcy The company entered into a debt restructuring agreement with lenders this past April. Pursuant to the agreement, the company’s debt obligations will be cleared in exchange for the lenders becoming majority shareholders in the company. The alternative to this is the company filing for Chapter 11 bankruptcy.

Market analysts are confident that more companies will follow suit and estimate that up to 75% of Wisconsin frac sand mines might close. The opening of more Texas mines has led to an oversupply in Wisconsin while the demand for Wisconsin frac sand decreases. There has also been an emergence of frac sand mines in Oklahoma. In the past 18 months alone, more than a dozen mines have appeared in west Texas and Oklahoma. These mines are located near some of the busiest oilfields in the U.S. The Texas mines produce greater than 100 million tons of sand a year. This means that just the Texas mines are producing enough sand to satisfy the estimated annual industry need.  

Experienced Wisconsin Bankruptcy Attorneys

Industry shifts are often the root cause of companies filing for bankruptcy. If your company is in the midst of bankruptcy, Hanson & Payne, LLC is available to answer any of your questions and advise you of your options. What you decide to do now can have a major impact on your future. Contact us today.

D-D-D-Defense Against The Clawback Of Preference Transfers

If one of your customers files for bankruptcy, you can assume that any money they owe you is long gone. If you get paid back anything at all, it will be much delayed and probably pennies on the dollar. That is a well-known risk of doing business without asking for cash on delivery.

A less well-known risk is that money customers pay you will be clawed back if they file for bankruptcy. Payments received from someone who filed bankruptcy less than a year after making that payment to you may be considered “preference transfers.” The bankruptcy trustee can demand that you return such payments to the bankruptcy court so it can determine if you were given preferential treatment by your customer — in other words, getting paid when others were not.

There are several ways to defend yourself against the clawback of a preference transfer, and we have helped our Milwaukee area clients use all of them.

Why Does This Law Exist?

It seems unfair that a business should be punished just because one of its customers has filed for bankruptcy, but the law was actually drafted to combat unfairness. The clawback provisions are intended to prevent some creditors from being treated better than others. Under the law, all of a bankrupt business’ creditors are supposed to be treated equally.

It Still Seems Unfair

If your business is one that got paid and is being asked to give back money that is rightfully yours, you might not agree that the law promotes fairness. Fortunately, there are exceptions to the clawback rule that you may be able to take advantage of. The three most common are (1) the contemporaneous exchange for new value, (2) the subsequent new value and (3) the ordinary course of business defenses.

(1) Contemporaneous Exchange for New Value

Perhaps the most common defense is the contemporaneous exchange for new value defense. It applies when the payment sent to a creditor was intended by both the debtor and creditor to be a contemporaneous exchange for new value, which can include goods, services, credit, or the release of property previously transferred. The important thing is that the money paid was in exchange for something new. The money cannot have been exchanged in order to pay off old debts.

Organizations doing business with debtors who are in financial trouble should make it clear in their bookkeeping that money coming in is being exchanged for something new of value, not paying off past due invoices.

The law works like this because it wants to incentivize companies to keep doing business with troubled organizations in hopes that they can turn things around rather than be forced into bankruptcy.

(2) Subsequent New Value

This defense is only slightly different from the previously discussed defense. In order to claim the subsequent new value defense, the creditor must have given something of value to the debtor after a payment from the debtor was received. Once again, this exception was drafted in order to incentivize the continuation of business relationships in situations where the creditor could easily have been pushed into bankruptcy sooner.

(3) Ordinary Course of Business

This defense applies when the payment subject to clawback was received in the ordinary course of business between the creditor and debtor. In order to take advantage of this defense, the creditor must be able to show that its relationship with the debtor did not change in the time period leading up to the debtor’s bankruptcy filing. No special payments were received, things were just going along like they usually did.

Experience You Can Trust

Our firm has helped many Milwaukee area businesses take advantage of these and other exceptions to the preference transfer law. In our experience, the sooner a creditor acts after being notified of a potential clawback the better. However, it is never too late to try and protect the money you are rightfully owed from flowing into someone else’s pocket. Whether you have just been notified your business was doing business with someone who has filed for bankruptcy, or you have already been asked to return a payment flagged as a preference transfer, don’t hesitate to contact our office and find out what your options are.

Nursing Homes in Receivership Highlight Another Non-Bankruptcy Option

When a business is struggling to stay afloat, and there is a good reason to keep its operations running instead of shutting it down, putting the business in receivership may be an option. Right now, there are several nursing homes in Wisconsin making headlines for their decision to go into receivership. They provide a good example of how the whole process works.

Eight More Wisconsin Nursing Homes Go Into Receivership

This spring, eight skilled nursing facilities — aka nursing homes — run by a company called Dycora Transitional Health & Living were placed into receivership. The facilities will all remain open for the time being, but they will be operated by another company while a buyer is sought. Unless something comes up, the residents will not have to move out and the employees who work there will continue to get paid.

According to the Milwaukee Journal Sentinel, “Dycora is the third company to have its Wisconsin nursing homes placed in receivership in roughly the past two years… In September, Atrium Health and Senior Living reached an agreement with its lender to have a receiver appointed for 23 nursing homes and nine assisted living centers in Wisconsin and one nursing home in Michigan. Similarly, the Fortis Management Group reached a similar agreement with its landlord to have a receiver appointed for its 65 nursing homes and assisted living centers in six states, including 28 in Wisconsin, in July 2017.

The crush of receiverships, and in other instances closures, is blamed on Wisconsin’s low Medicaid reimbursement rate.

How Does Receivership Work?

Receivership is an alternative to bankruptcy. Instead of winding things down and selling off assets through the bankruptcy process, the business stays open but makes it clear that it is in trouble and is looking for someone else to take over its operations.

A company placed into receivership has a person known as a receiver appointed by the courts. The receiver can pay employees and vendors, and hire someone to keep the business running while looking for a buyer.

Receivership is an attractive option for the business owner, who would otherwise be forced to file for bankruptcy. Compared to bankruptcy, a receivership is cheaper, and it is a faster way to sell off a business.

When the business is providing an important service, as a nursing home does, receivership makes sense from a public good perspective. The employees will continue to get paid, and the people in the facilities will continue to be cared for. If the business filed for bankruptcy or shut down, the residents would be at risk of losing their home and not being properly cared for, and the employees would lose their jobs.

Buyers may be interested in purchasing a business in receivership because the company is selling for a good price, and because they can theoretically turn a profit more quickly by buying a business that is already up and running.

Not An Option For Everyone

Going into receivership is not an option for every troubled business. Winding down operations or going into bankruptcy is better in some circumstances, and negotiating a workout is better in others. What options are available to your business depend on the situation you are in. If you would like to find out what paths forward are open to your business, please contact our experienced team at Hanson & Payne, LLC to schedule an initial consultation.