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.

Is It Bankruptcy? Or Is It Cake?

There’s a new game show on Netflix called “Is It Cake?” On it, expert bakers make cakes that look exactly like everyday objects. The people on the show have a few seconds to decide if the object they are looking at is cake or the real deal.

The cakes are so realistic looking, and the participants are under so much pressure to quickly assess the objects they are looking at, that real objects are often mistaken for cake (and vice versa). The only way to know what is actually a cake is to cut into it. 

This is reminiscent of the way adversary proceedings work. From the outside, a bankruptcy case may look run-of-the-mill, but an experienced practitioner must quickly assess whether it is appropriate to cut into the case and file an adversary proceeding. 

What Is An Adversary Proceeding? 

An adversary proceeding is a lawsuit filed within a bankruptcy case, typically by a creditor or ex-spouse, in order to preserve their claim against the debtor’s assets. If an adversary proceeding is successful, the person or entity who files suit will still be able to seek payment from the debtor, even after their bankruptcy case is closed and other debts have been forgiven. 

These cases are of critical importance for both parties. For a debtor, an adversary proceeding may make the difference between coming out of bankruptcy with a clean slate or coming out still owing a significant amount of money to creditors. For someone in a financial relationship with a bankruptcy filer, an adversary proceeding may be what salvages their financial claims and keeps them from having to file their own bankruptcy case. At Hanon & Payne, we have worked for both debtors and creditors in these cases and seen their importance close up. 

Adversary Proceedings Come In Many Shapes And Sizes

Some common examples of adversary proceedings include:

  • Claims arising from the debtor’s fraud or intentional misrepresentations 
  • A divorced spouse owed maintenance, or who is worried that their ex-spouse will not pay the debts assigned to them in the Marital Separation Agreement
  • Contractor theft claims, specifically in construction or development cases  
  • Claims arising from bad (bounced) checks
  • Claims between former business associates or affiliates
  • Claims against former employees for breach of a non-compete agreement or for theft/embezzlement
  • Actions taken by the bankruptcy trustee in order to recover gifts or transfers of property to friends or family members of the debtor in the 1-year period prior to the bankruptcy filing.

What determines whether an adversary proceeding will be successful varies from case to case. In fact, the list of claims that are not dischargeable in Chapter 7 cases is even different from the list of claims that are not dischargeable in Chapter 13 cases. 

This is why it is important to get advice from an experienced bankruptcy attorney like those at Hanson & Payne if you are considering filing for bankruptcy, or have a financial relationship with someone who has filed for bankruptcy. This is a complex area of bankruptcy law, so “winging it” will not work. Messing up could cause you financial hardship, or even get you sanctioned by the bankruptcy court. 

A Milwaukee Bankruptcy Attorney You Can Trust 

Whether you are a debtor or creditor in the Milwaukee area, the Hanson & Payne team is here to answer any questions you may have about the bankruptcy process. Rather than making snap judgments, or going off first looks alone, we will slice into any case before us so we can give the best advice possible. Please contact us today to schedule a meeting.

“The One” That Got Away

A Los Angeles megamansion once expected to list for $500 million has sold at a bankruptcy auction for $141 million. While Milwaukee’s real estate market isn’t as hot as LA’s, the entire saga provides an interesting look at the bankruptcy process. Hanson & Payne has been involved with several similar but smaller bankruptcy cases like this in our area

One Of A Kind

When he started building The One more than a decade ago, developer Nile Niami planned for it to be one-of-a-kind. He bragged that it would be the most expensive home in the world.

The compound sits on 3.8 acres, and has 360-degree views of the Pacific Ocean, downtown Los Angeles and the San Gabriel Mountains. According to the listing, there is 105,000 square feet of living space, which includes 21 bedrooms, 42 bathrooms, and 7 half-baths. There is also a nightclub, a juice bar, a full-service beauty salon, a wellness spa, a tennis court, a home theater that seats 40, a bowling alley, a 10,000-bottle wine cellar, 30-car garage, and a 400-foot private outdoor running track. The property features seven water features, including a massive moat that runs around the property.

It truly is one of a kind. And there will never be another home like it built near LA, which has changed its property laws to prevent similar developments from cropping up. 

One Major Headache 

Delays and disputes dramatically increased the cost of building The One. 

The developer originally wanted to list it for $500 million. However, his debt on the property ballooned to more than $190 million. The property was placed into receivership and then went into bankruptcy. As part of a bankruptcy agreement, it was listed for $295 million and, when no buyer emerged, it was put up for auction.

It sold for $141 million. This makes it the third most expensive home ever sold in Los Angeles. It’s behind the Jack Warner Estate (as in Warner Brothers) bought by Amazon’s Jeff Bezos for $165 million, and a Malibu compound that sold for $177 million last year. 

The selling price is also “about $60 million less than the total debt on the house, meaning several lenders may still end up losing money on the home. The biggest lender was Los Angeles subprime lending magnate Don Hankey, who loaned more than $125 million to the project. People familiar with the sale said Hankey, who could have used his loan to “credit bid,” was not the final buyer.”

This is not an unusual situation. Properties that sell at bankruptcy often go for less than they would on the open market. 

One For The Road

Though the house has been sold, there are still a number of issues that the new owner will need to spend money addressing. CNBC says, “According to the receiver’s report and an engineering study, the house has cracks in and around many of the pools and stonework, as well as signs of mold. It has several outstanding building and occupancy permits, and a local homeowner’s association is challenging its construction.”

One-Stop Shop

Hanson & Payne LLC is a full-service bankruptcy law firm in Milwaukee. We have worked with developers, lenders, and property buyers in the Milwaukee area when their properties are put into receivership or someone involved in a project files for bankruptcy. Our experienced team of attorneys are “the ones” you should reach out to if you have questions about real estate transactions and bankruptcy.

A Return To Rigidity? A Look At Commercial Lending Post-Pandemic

Since the beginning of the coronavirus pandemic, commercial lenders have been more willing than ever before to give borrowers some grace when they fall on hard times. But that willingness to be flexible is decreasing by the day. 

The Hanson & Payne team is working with commercial lenders and borrowers in the Milwaukee area as they try to navigate the shifting financial landscape. 

FDIC Encourages Flexibility A Return To Rigidity? A Look At Commercial Lending Post-Pandemic 

One of the big reasons banks have been so willing to work with borrowers over the past two years is because the FDIC told them to. 

As the FDIC says on its website:

Just days after the World Health Organization formally declared a global pandemic, we issued a statement acknowledging that this unique and evolving situation could pose significant temporary business disruptions and challenges, and encouraging financial institutions to work with customers and communities affected by COVID-19. Specifically, we stated that an institution’s prudent efforts to modify the terms on existing loans for affected customers would not be subject to examiner criticism. We committed to working with affected financial institutions to reduce the burden when scheduling examinations, including making greater use of off-site reviews, consistent with applicable legal and regulatory requirements.

We have encouraged banks to work with all borrowers, especially those from industry sectors particularly vulnerable to economic volatility. We have clarified that prudent efforts to modify the terms on existing loans for affected customers will not be subject to examiner criticism and that certain loan modifications made in response to COVID-19 are not troubled debt restructurings (TDRs). We have also provided flexibility to enable mortgage servicers to work with struggling consumers and to allow for delayed receipt of required appraisals for certain residential and commercial real estate loans.

These are just a summary of the specific directives released by the FDIC, but it is clear that banks were supposed to be much more flexible than usual. 

And they were. Over the past two years, Hanson & Payne has worked with banks and borrowers to renegotiate or restructure a lot of debt and make sure everyone’s interests are protected when new documents memorializing these agreements are drafted. 

What Comes Next? 

The big question everyone is asking now is what comes next? Pandemic guidance is going to go away at some point. However, in the face of inflation, banks may want to continue being flexible in order to attract borrowers. 

On the other hand, banks can’t be too generous lest their portfolios appear rosier than they actually are. This could destabilize the financial system more than the pandemic and the uptick in inflation already have. 

Milwaukee Area Bankruptcy Attorneys You Can Trust

Come what may, the Hanson & Payne team is always ready to assist Milwaukee area borrowers and lenders. Our experienced team of attorneys can assist with restructuring and workouts, or help guide our clients through the bankruptcy process. Please contact us today to schedule an initial consultation.

Drastic Times, Drastic Measures?

A recent article published by Kiplinger warns that “a wave of bankruptcies and foreclosures appears to be building.” The author says that the combination of covid, inflation, supply chain issues, and a workforce that is demanding more flexibility, has created a perfect storm. 

The Hanson & Payne team has noticed the confluence of these events as well. We, however, are a bit more optimistic than the author about what the future holds. Wisconsinites, and Milwaukee area residents and businesses, in particular, are a resilient and resourceful bunch. 

Time To Take Action? 

The author suggests that everyone should be taking evasive action to avoid the predicted financial crisis:

For homeowners, interest rates will almost certainly increase in the near future.  If a homeowner can refinance his or her mortgage to take advantage of the current low-interest rates, that course of action should be considered.

For consumers, accelerating the timing of any major purchases will make sense since the looming inflation will make the dollar worth less and less and make the effective cost of an item more expensive as time passes. Individuals should also consider exiting the stock market or minimizing their stock portfolios as soon as possible. Conversion of stock to cash is not a good strategy during a time when the value of the dollar will steadily decline. Conventional wisdom dictates that investment in precious metals, such as gold and silver, is a safe harbor.  Thus, selling stock and buying gold and silver makes sense.

Business owners should analyze their businesses based on the assumption that the near future will bring high inflation, high interest rates, and a continuation of supply chain disruption.  It is prudent to take steps to restructure the business in a way that will mitigate the damages if those future assumptions come to pass.  

Whether you should follow this financial advice depends on your specific situation. Nobody can predict the future, and even authors in respected publications like Kiplinger can only speak in generalities. The same is true of sources giving out information on bankruptcy. 

Generally Speaking, You Need To Know The Specifics 

Whether or not a wave of bankruptcies is coming tells you little about whether you or your business is at risk of being pushed into bankruptcy. Talking through your finances with an experienced bankruptcy attorney like those at Hanson & Payne is the best way to figure out if bankruptcy is in your future. 

You may also choose to file for bankruptcy proactively. Bankruptcy provides businesses an opportunity to retool and refocus. It can head off emerging issues before they become big problems by giving the filer much-needed flexibility. 

If you are worried about your finances or have questions about bankruptcy, the Hanson & Payne team is here for you. We are Milwaukee-based attorneys who have decades of experience helping Wisconsin businesses and families secure their financial futures. Please contact us today to schedule a meeting. 

And You Thought Things Couldn’t Get Any Worse

Do you remember that Tom Hanks movie from the 1980s where he and Shelley Long buy a beautiful looking house only to find out it is, as the movie’s title suggests, “The Money Pit”? The front door comes off its hinges, staircases tumble down, and a bathtub even falls through the floor. Just when they think they have identified everything that is wrong, something else breaks. 

The parade of errors is funny, but also a good reminder that there’s no limit to bad luck. Just because things have been going poorly doesn’t mean they have to start turning around. Often, you need to take action to make things go your way. For many of Hanson & Payne’s clients, filing for bankruptcy is that self-initiated inflection point. 

Many Milwaukee area residents and businesses use the bankruptcy process to help get their finances under control and move forward. Unfortunately, filing for bankruptcy is no guarantee that your luck is going to change. 

File Soon, But Not Too Soon

Bad things can and do happen to people after they have filed for bankruptcy. That’s why it is important to figure out when filing for bankruptcy will work best for you. You should do it soon enough that it can help you salvage what you still have. But not too soon. You don’t want to risk your financial situation getting a lot worse after your case is filed. 

While bankruptcy can help you deal with debts that have already accumulated, it typically cannot help with financial issues that arise after the case is filed. 

What About Post-Petition Debt?

The debt you have before your case is filed is called “pre-petition debt.” The bankruptcy process is designed to deal with this debt. 

Debt that you incur after your case is filed is called “post-petition debt.” Most post-petition debt cannot be addressed in a pending bankruptcy case. However, there are some exceptions to this rule. 

First, some Chapter 13 petitioners may be able to have post-petition debt included in their existing bankruptcy repayment plan if the court okays it. Whether this is allowed depends on the type and amount of debt, and sometimes, the judge. 

Second, if you have filed for bankruptcy under Chapter 13, you can request that your case be converted to a Chapter 7 case. If your case is converted, you should be able to include new debts in it. 

If you have questions about post-petition debt or any type of debt, Hanson & Payne’s experienced team of bankruptcy attorneys is here for you. There are tactics that can be used to reduce or help you manage post-petition debt even if it cannot be forgiven. 

Milwaukee Area Bankruptcy Attorneys You Can Trust

At the end of “The Money Pit,” Hanks and Long’s characters have everything fixed up, and the possibility of a happily ever after. With some help and hard work, they dug themselves out of the pit. The same thing is possible for Milwaukee area residents who find themselves in a financial hole. Hanson & Payne is an experienced bankruptcy firm that can help you when everything seems to be going wrong. Please contact us today to schedule a meeting.

A Titan Of The Tech Industry Who Called Milwaukee Home

It is not too often that the death of a Milwaukee citizen makes national news, but John C. Koss deserves every ounce of ink spilled about him. Koss and a friend invented stereo headphones, revolutionizing the way we listen to music. Milwaukeeans know him for his charitable work, and the humorous billboards the Koss company put up around town. What many people may not know is how he stepped up and led his company through the Chapter 11 bankruptcy process

According to his obituary in the New York Times, “Koss and his friend Martin Lange Jr., an engineer, developed a portable stereo phonograph in 1958 that they called a ‘private listening station.’ It had a turntable, speakers, and a privacy switch that let users plug headphones into a jack. But most of the headphones available, like those used by telephone operators, shortwave radio users, and pilots, were incompatible and not stereophonic. So they rigged up cardboard cups that contained three-inch speakers and chamois pads from a flight helmet, and they attached them to a headband made of a bent clothes hanger covered with a rubber shower hose.” 

The private listening station didn’t take off, but Koss headphones became the industry standard. They were even used by the members of the House Judiciary Committee for listening to the White House tapes during President Richard M. Nixon’s impeachment inquiry. 

In the 1980s, Koss brought in a professional manager to help grow the company. The manager diversified the product line and moved production offshore, but instead of growing, things fell apart. The professional manager left after his five-year contract was up, and Koss retook the reins. Eventually, the company had to file for Chapter 11 bankruptcy. 

In a 1988 interview with Inc. magazine, Koss said about his company’s bankruptcy, “I felt awful … My board had agreed, my family had agreed, but I was the guy who had to sign the papers. I just walked around in a daze, angry at myself.”

Two years later, in a follow-up interview, he elaborated a bit more on how bankruptcy impacted him.

INC.: Does it cost you anything in your head, your heart, or your gut to file bankruptcy?

KOSS: It costs a lot. The guy who starts the business never thinks it’s going to fail. That is why most bankruptcies are too little, too late. People wait too long, thinking something will happen at the last minute. Somebody has to be objective for you in your organization. If you are an entrepreneur, that person has to tell you, We’ve got to stop here, or there will be nothing left. I don’t think the fellows in Chicago who became our lead bank realized that they weren’t dealing with a man and a business; they were dealing with a man and his life’s work — not only my life’s work but my wife’s and the five kids’. What were we going to do, take something we had spent all our lives developing and just throw it away? Or were we going to fix it? It was never a question of whether we were going to turn it around, just when.

INC.: So it was more than a business issue for you?

KOSS: Yes, it was the family, the lifestyle, the whole thing. It wasn’t just deciding with your wife that, gee, the business has come to the end, so we’ll let it go and do something else. This was an exciting life’s work…. Signing those Chapter 11 papers was hard — especially because of my age. I’m from a generation where you never did that.

INC.: How did you reconcile this bias you had against bankruptcy in light of having to file for one yourself?

KOSS: I talked to a lot of people, including some friends who had gone through it. One friend gave me very good advice. He said: “When you do this, you’ll want to hole up at home. You won’t want to talk to anybody or see people. You’re going to feel like a beaten animal. Don’t do any of that,” he warned me. He said it would eat me up from the inside, and I’d die from it.

…The first night I stayed in and sat with my wife. It was on the television, and of course, I had called a few friends to let them know it was coming. The next day, though, I went charging into the office with a very positive attitude because we were going to get through this thing. We were sharing information about what was going on with our employees and everybody else.

Another friend told me that there’s another reason that you don’t go into hiding. The reason is that a lot of people out there want to help you.

INC.: Is failure — to the extent that bankruptcy is seen as failure — a culturally acceptable event?

KOSS: Failure is when you join the turf club. Anything else is an experience that didn’t work out too well. Bankruptcy is a tool. If you try your best and you’re an ethical and honest businessman and circumstances work against you, the tool is there to give you a chance to start over. We started over, and my God, look at all the jobs and the families we saved.

This is a refreshingly honest look at how difficult it is to file for business bankruptcy when your business is very much an extension of yourself. But as Koss said, sometimes circumstances work against you, and you need to use the tools available to turn things around. Bankruptcy is that tool, and using it is nothing to be ashamed of. 

Rest in peace, Mr. Koss. Thank you for everything you did for Milwaukee, and the music you brought to the world. Contact our team today.

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.