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. 

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.

Should I file for bankruptcy before or after my divorce?

Going through a divorce is a stressful journey on its own. If your divorce is accompanied by financial problems, this stress is compounded. As you go through one of life’s largest hurdles, you may also consider filing for bankruptcy protection.  Not only can this step help protect you from an unscrupulous ex who may run up debt prior to your divorce, but it can also help you make a complete fresh start with less financial worry.

Chapter 7 or Chapter 13 Bankruptcy?

The decision about when to file for bankruptcy depends on a number of factors. The answer will largely depend on whether you want to file under Chapter 7 or Chapter 13. If you qualify for Chapter 7 bankruptcy protection and really want a fresh start, filing before your divorce is a smart option. The process only takes a few months and you can save on filing fees if you file jointly.

If, on the other hand, your joint household income is too high to qualify you for Chapter 7 bankruptcy, then you should decide whether your single income would be low enough to qualify after your divorce, or alternatively, seek Chapter 13 bankruptcy protection.

Income Constraints

In Wisconsin, if the two of you make less than $57,903 and have no children, then you should qualify for Chapter 7 bankruptcy protection before your divorce. If, however, your income exceeds that amount but your single income will be less than $43,958, it would be a good idea to wait until after your divorce to file for Chapter 7 bankruptcy protection.

If your joint and single income amounts are simply too high to qualify for Chapter 7 bankruptcy protection, then you may consider Chapter 13 protect after your divorce. Why after? Because it takes three to five years for a Chapter 13 bankruptcy proceeding to come to a close. Unless you want to continue in your marriage for those extra years, then it would be prudent to wait until after your divorce is finalized to take this next step.

Relationship Status

If you and your spouse qualify for Chapter 7 bankruptcy and are on relatively good terms during the divorce process, filing for bankruptcy before the divorce is finalized can be a good thing. If things are rocky though, your spouse may hinder your efforts to settle your debt situation. You need to be able to depend on your spouse to provide financial documents and appear in court.

Asset Questions

Another big item to watch out for is the distribution of your assets. It is important to talk to your attorney about the implications of a divorce settlement on bankruptcy protection, particularly for assets held jointly.

Thinking About Divorce and Bankruptcy

If you are struggling to meet your financial obligations during your divorce, there are ways to make things easier on yourself. The experienced bankruptcy attorneys at Hanson & Payne provide you with options for seeking bankruptcy protection during a divorce. Contact us today or call (414) 271-4550 for a consultation.

Can You Wipe Out Taxes in Bankruptcy?

image of No more debtA common question that people have about bankruptcy is whether they will be able to “wipe out” (referred to in bankruptcy terminology as “discharge”) certain taxes owed to the Federal and State governments if they file bankruptcy.

If you file a Chapter 7 bankruptcy case, then your income taxes can only be wiped out if all of the following are true:

  1. the due date for the tax return for the tax year in question must be more than three years ago,
  2. the tax return for the tax year in question must have been filed on time (if the tax return was not filed on time, then it must have been filed more than two years ago), and
  3. the tax must have been assessed against you by either the Federal or State government at least 240 days (eight months) ago.

Continue reading

Can I Keep My Home and Car if I File for Bankruptcy?

image of wallet being squeezedA common misunderstanding that people have about bankruptcy is that you cannot keep your home and car(s) if you file bankruptcy. In reality, most people who file for bankruptcy protection get to keep their home, cars, and all of their other property.

When you file for bankruptcy, you must list all of the property which you own at that time. Depending on the value of your car and the nature of your various items of property, you can protect and prevent most property from being taken by the bankruptcy court. Continue reading

The Bankruptcy Means Test: Do I Qualify for Bankruptcy?

image of Worried about bills?The bankruptcy “means test” is the method used to determine whether you are likely to succeed in filing a Chapter 7 bankruptcy case. Chapter 7 bankruptcy is usually preferred because it allows you to receive a “fresh start” without having to pay any money back to your creditors.

The first step in determining whether you are likely to succeed in filing a Chapter 7 bankruptcy case is to see whether your average monthly income (determined by averaging your income over the last six months) is more or less than the median income for a household of your size. If your income is less than the median income, then the means test won’t affect your ability to succeed in filing a Chapter 7 bankruptcy case. The table below shows Wisconsin’s median income figures for households of 1-4 people. Your household size is generally determined by how many family members live with you. Continue reading

Buying a Home After Bankruptcy

image of home foreclosureSome clients are surprised to learn that, after filing bankruptcy, they are actually in better shape to buy a home than they were before. They wonder, “How is this possible with my credit?” By taking care of debt through Chapter 7 or Chapter 13, it shows that a person is serious about getting their debt problems under control. It also frees a person from onerous credit card debt and other bills that make it impossible to save up for a down payment. While there are some restrictions immediately following a bankruptcy, within two years most people are able to at least examine the possibility of buying a house. Continue reading

Business Workouts and Bankruptcy

Business Restructuring Debt Choices

image of store closing signThe Great Recession continues to impose high financial hurdles for today’s businesses, including increases in the cost of goods sold, slower paying customers, and an increase in uncollectible accounts receivable. Over the same period of time, credit markets have tightened, making a traditional refinancing of business debt difficult to accomplish. Business debt workouts and Chapter 11 or 13 bankruptcy cases are the most commonly used solutions for unsustainable financial strain on a business. Continue reading

3 Solid Strategies to Erase Tax Debt for Good

Paths out of a Nightmare

image of income tax debtFalling into tax debt is one of the most stressful situations a person can endure. Constant calls from tax collectors have you in knots, and in fear for your financial future, as well as your family’s well-being.

Fortunately, there are several paths to take that lead out of those dark woods, and the following list contains some of the best. Continue reading

Debt Negotiation

Debt negotiation involves negotiating with your creditors to reduce your debt level. If your debts are out of control, negotiation services can help you get out of debt quicker. If you are considering negotiating your debts, it is important that you get help from a qualified attorney.

Creditors are much more willing to negotiate with a professional; therefore, a lawyer can convince your creditors to decrease the balance on your bill. Some of the types of debt that can be settled include medical bills, unsecured loans and credit card bills. In some cases, it is possible to negotiate your mortgage loan or auto loan. Continue reading