Linda McMahon Knows How To Take A Hit And Come Back Stronger

“..It’s really not how you fall… it’s how you get back up…” These are wise words from Linda McMahon, the head of the federal Small Business Administration and the co-founder and former chief executive officer of WWE. Because of her background, you might think this is advice she is giving to an aspiring wrestler, but it is actually a summation of the lessons she learned when she and her husband Vince were forced to file for personal bankruptcy.

Why Were the McMahon’s Forced to File for Personal Bankruptcy?

According to Linda, the McMahons accumulated over $1 million in debt when she was in her late 20s. She and Vince, “partnered with some folks who weren’t quite the business partners we expected them to be” and invested in a construction company and a cement block factory. Things quickly went south, and the McMahons lost their house and had to watch as their car was repossessed.

“We didn’t really know the safeguards to really look for. We were relying on someone else whose opinion we respected at the time for those kinds of investments, and they just didn’t work,” says McMahon.

After going through bankruptcy, the couple was determined not to make the same mistakes again. They focused on what they knew rather than trusting others for business advice, and ended up growing the WWE from a 13-person regional operation to a publicly traded global enterprise with more than 800 employees in offices worldwide.

Filing for bankruptcy is what allowed the McMahons to get back on their feet and build their business into what it is today. And the law offers this same opportunity to everyone. Our firm has helped countless Wisconsin families and businesses navigate the bankruptcy system and get on with their lives.

And we do so in a very focused and unique way. Instead of rushing through as many cases as possible so we can make a quick buck and move on, we get to know our clients and work with them to craft a plan that will allow them to move forward on their own terms. We believe this is important because like Linda McMahon says, it’s how you get back up that matters. We don’t just help our clients get through the bankruptcy process, we help them get back up.

Pressing Pause

Ever since Remington filed for bankruptcy and the media reported that that might prevent the Sandy Hook parents from recovering anything if they prevail in their lawsuit against the gun manufacturer, we have been getting a lot of questions from potential clients about the interplay between bankruptcy and other lawsuits. In this post, we’ll dive into this issue and try to answer a few common questions about this topic.

A whatchamacallit.

First, let’s talk terminology. An “automatic stay” is the legal name for what happens to other lawsuits when a bankruptcy suit is filed. You can even think of it like the common command given to dogs — stay. But even good dogs will not “stay” forever. Eventually they get moving again, and so do stayed lawsuits.

Will a pending lawsuit go away if I file for bankruptcy?

The short answer is no. Filing for bankruptcy will not make other lawsuits magically disappear. All bankruptcy does is stay other lawsuits until the bankruptcy case is resolved or the court grants the litigants permission to proceed with other claims.

The longer answer is that some litigants will drop their cases or offer more favorable settlement terms if the party they are suing files for bankruptcy. Because of this, some individuals and companies will file for bankruptcy as a strategic move.

Some examples may help.

One of the most common examples of a legal action that is stayed by a bankruptcy filing is a foreclosure. Filing for bankruptcy hits the pause button on the foreclosure since the mortgage is pulled into the bankruptcy. The mortgage doesn’t disappear, but the lender might be open to renegotiating the terms.

Keep in mind that the stay stops all sorts of cases. A couple that is divorcing will have their case stayed if one of the partners files for bankruptcy.

What about criminal cases?

Unlike civil cases, criminal cases are generally not stayed when the person who is the target of a prosecution files for bankruptcy.

However, there are exceptions to this. If a criminal case involves money or property, it too might be paused until a bankruptcy case is resolved. But this is not a hard and fast rule. If the case is about money or property, but the government is seeking to punish the lawbreaker rather than seeking repayment, the case may proceed.

Consider the case of a person who starts blowing through the toll plaza without paying. The government tracks the person down and files a criminal complaint against them. Well, it turns out the person wasn’t paying the tolls because they couldn’t afford to, so he or she files for bankruptcy. Whether the criminal case is stayed depends on what the government wants out of the case. If the government wants all the back tolls paid, the case will be stayed and might even be folded into the bankruptcy case. If, however, the government wants to punish the toll-shirker by throwing them  in jail, the criminal case may proceed alongside the bankruptcy case.

Bankruptcy is a tool, not a weapon.

Debtors who are considering filing bankruptcy just to pause other cases should proceed with caution. Bankruptcy is meant to be used as a tool, not a weapon. If you are struggling with debt, a debt negotiation attorney can help you organize your financials. If Bankruptcy is your only option, consult with a bankruptcy attorney to discuss whether chapter 7 or chapter 13 bankruptcy is the best option for you.

Bankruptcy Is Good For Gibson Guitars

Elvis, B.B. King, Eric Clapton, Jimmy Page, Carlos Santana, Pete Townshend, Jimi Hendrix Slash, and Dave Grohl are just a handful of the musicians who have made Gibson guitars the most popular guitars in the world. The iconic instruments are so essential to modern musicians that there was a debate on the day Gibson filed for bankruptcy over whether that was the new “day the music died.” Those people have obviously not been reading this blog, because as we have said time and time again, for many companies, bankruptcy is the beginning of a new chapter rather than the end of the story.

The Details on Gibson’s Ill-Fated Diversification

Gibson Brands Inc. was founded in 1902 by Orville Gibson as Gibson Mandolin-Guitar Mfg. Co. Ltd. in Kalamazoo, Michigan. The company started out making only mandolins, but soon branched out, and became popular with those who embraced electric instruments. It’s most famous guitar, the solid-bodied, electric Les Paul, named after the Wisconsin native who designed it, remains most of the most popular guitars of all time, and early versions of it are highly collectable.

In the 1980s, the company moved to Nashville, where it expanded its line and attempted to diversify its brand by becoming a musical lifestyle company with products including headphones, speakers, and accessories. It was this ill-fated attempt at diversification that lead to the company’s 2018 bankruptcy.

The company says that it sells over 170,000 guitars annually in more than 80 countries, but its consumer electronics business is lagging. In its bankruptcy petition, which notes that the company currently has up to $500 million in debt, the company states that it will use the Chapter 11 process to refocus its operations on its musical instruments and professional audio business, “unburdened by the challenges experienced by [the company’s] separate, primarily non-U.S., consumer electronics business.”

Same Old Story, Same Old Song And Dance

Gibson’s decision to file for Chapter 11 bankruptcy in order to reorganize and refocus is not unusual. Sophisticated businesses understand that bankruptcy exists for a reason. It is not just a way to wind down operations, it is a mechanism that can be used to re-tool a business and make it profitable again.

More businesses, and individuals, should consider taking advantage of the bankruptcy process. It is not the right option in every situation, but far more people and organizations could benefit from it than currently do.

Businesses and individuals who are facing financial difficulties, and who are questioning what their options are, should not hesitate to make an appointment with an experienced bankruptcy attorney. An attorney will be able to offer advice on what options are available, and outline how they can be used to move forward. And moving forward should be the focus. Despite the fact that many people and businesses equate bankruptcy with failure, it is more about moving forward than anything else.

Bankruptcy Leads to Felony Charges At UW-Oshkosh

When the UW-Oshkosh Foundation filed for bankruptcy last year, few could predict what a wide-ranging impact that case would have. Now, bankruptcy attorneys, college administrators, and policy makers are closely watching the case and debating what steps can be taken to keep other foundations, universities, and lenders from suffering a similar fate.

Last fall, the UW-Oshkosh Foundation, which is a separate, supposedly self-funded entity designed to support UW-Oshkosh, filed for Chapter 11 bankruptcy. Normally, these sorts of foundations fundraise on their namesake organization’s behalf in order to provide scholarships and other financial support, but the UW-Oshkosh Foundation went a bit out of the box and inked five development deals that it hoped would provide revenue to the school over time.

It backed two bio-digesters that turn farm animal waste in energy, an alumni welcome center, a sports complex, and a hotel in downtown Oshkosh. The hotel has proven financially solvent, but the other investments have put the Foundation $14.5 million in debt.

Former Chancellor Richard Wells and former Vice Chancellor Tom Sonnleitner are facing criminal charges over all of this because it appears they lied to the Foundation’s lenders, saying that UW-Oshkosh — so students and taxpayers — would back the loans if the Foundation couldn’t make its payments. Both men are charged with five counts of misconduct in office by acting beyond their authority as parties to a crime. The maximum penalty for each charge is 3.5 years in prison.

The UW System is suing Wells and Sonnleitner in civil court over all this as well. They do not want the System to be on the hook for the UW-Oshkosh Foundation’s debts. And they really don’t want any taxpayer dollars or student funds used to pay off creditors. There are, however, questions about how much the UW System knew about what was going on at Oshkosh. Did the Board of Regents really not know that the school itself had agreed to pay for an alumni welcome center if the Foundation couldn’t make its debt payments?

Lawmakers in Madison are poised to take action to ensure that the 90-some “affiliated organizations” in the state that are similar to the UW-Oshkosh Foundation — in that they are supposed to be non-taxpayer-supported organizations that promote or support some function of the University of Wisconsin System or a specific college or university — are acting appropriately, and that the Board of Regents is exercising proper oversight over them.

From a bankruptcy law perspective, this case highlights how quickly things can get complicated when someone or some organization that is closely related to other entities files for bankruptcy. Although all related parties should know what financial commitments they have, too often leaders sign agreements with a wink and a nudge that suggest other assets could be in play if needed.

Our firm wades into the thick of disagreements over who owes who what all the time, and we have years of experience settling and litigating such matters.

Is Filing Bankruptcy Bad For Your Health?

A new study published in the Journal of the American Medical Association is creating quite a stir. It suggests that going bankrupt can be as bad for your health as heart disease.

While previous studies had suggested that financial trouble can lead to depression and high blood pressure, this is the first medical study to suggest that financial hardship is associated with early death.

“An analysis involving more than 8,000 Americans found that those who suffered a ‘negative wealth shock’ — defined as losing at least 75 percent of their wealth in two years — faced a 50 percent increased risk of dying over the next two decades.”

The researchers point out this puts formerly wealthy people at the same risk of early death as those who have been poor their entire lives. Now the researchers want to study whether there is any way to inoculate someone against the negative health effects of a wealth shock. However, they will first need to do some research to figure out what comes first, a wealth shock or a decline in health. It could be that wealth shocks are being triggered by rising healthcare costs, rather than the other way around.

While the magnitude of the link between a wealth shock and a decline in health revealed by this study is shocking, the fact that a link exists is not shocking. Over the years, we have noticed that some of our clients suffer physically and emotionally as they go through the bankruptcy process. That’s one of the reasons why our firm goes out of its way to make the bankruptcy process as stress-free and straightforward as possible. We do this by being responsive to our clients and brutally honest with them.

When a client calls or emails with a question, we get back to them as quickly as possible. Even if all we can say is, “That’s a good question, I’ll look into it and get back to you,” we want our clients to know that we are taking their case as seriously as they are. We treat every client we work with like they are our number one client because that is what they deserve.

We are also committed to being upfront with our clients about what is really going on with their case. We don’t sugar-coat our assessments in order to make things sound better than they actually are. We give a straightforward analysis of the issues at hand and the paths we can take to move forward. Being direct helps eliminate confusion and uncertainty, which we find are some of the most stressful parts of the bankruptcy process.

While we will never be able to make going through bankruptcy as stress-free as a walk in the park, it is our hope that having us by their side makes the process less intimidating. Bankruptcy is supposed to be a way forward, not a dead end, and we strive to make that true for our clients.

Involuntary Bankruptcy Threatens To Shutter America’s Oldest Candy Maker

The New England Confectionery Co., creator of the iconic Necco wafer, and the oldest continually operated candy maker in the United States may soon be closing its doors. Three businesses that are each allegedly owed hundreds of thousands of dollars by the wafer-maker are reportedly asking a Massachusetts court to force the struggling company into bankruptcy. Could this spell the end of the chalky wafers and other confectionary delights we all so love to hate?

Necco Wafers, Mary Janes, Clark Bars, Squirrel Nut Zippers, and Sweethearts – those Valentine’s Day goodies with little messages written on them – are some of the most polarizing treats out there. You either can’t live without them, or you can’t stand them. But they have stood the test of time. Their maker, the New England Confectionery Co. has been in business since before the Civil War.

However, the iconic candy company is in trouble. The Boston Business Journal is reporting that the company’s debtors have filed a petition seeking to force the company into involuntary bankruptcy. The business is now looking for a buyer that will save them, and a former CEO has set up a GoFundMe account in hopes of raising the $20 million he claims is necessary to save Necco wafers.

Being forced by creditors to file for bankruptcy is somewhat uncommon in this day and age, when businesses and people can voluntarily file for a reorganization bankruptcy and use the process to get their affairs in order, but involuntary bankruptcy is obviously not dead.

Involuntary bankruptcies are a way for creditors to protect themselves when they think a company is on shaky financial footing, or when a company is believed to have the ability to pay its creditors, but for some reason is refusing to do so.

If a company has more than 12 creditors, at least 3 of the creditors must band together to file a bankruptcy petition. If a company has fewer than 12 creditors, a single creditor can push for bankruptcy. Either way, additional creditors can join the case as it progresses.

Businesses have the right to respond to and fight a petition for involuntary bankruptcy, which is what the New England Confectionery Co. is doing now. If they cannot find a buyer, the court will decide if the creditors’ petition should be granted. If so, things will proceed as if this is a typical, debtor-filed action.

No matter what your opinion on Necco wafers, it will be interesting to see how this case turns out. The search for a buyer, and the attempt by the former CEO to crowd-fund a purchase mean everything is playing out very publicly. Plus, fears that Necco wafers will be no more has caused people to start stockpiling the snack. This is definitely a case to keep an eye on if you are a creditor of a well-known brand.

Bankruptcy & Taxes

As Benjamin Franklin noted, “[I]n this world nothing can be said to be certain, except death and taxes.” It’s good advice when you need some perspective, and when you are filing for bankruptcy. While you’re probably going to want to hire a different lawyer to work with you on the death part of the equation, we work to make sure our clients are ready to handle the tax consequences of a bankruptcy filing.

The first thing to know about bankruptcy and taxes is that most tax debt is not dischargeable. This means you cannot wipe it away by filing for bankruptcy. You will still owe most of the taxes you owed before you filed for bankruptcy after you come through the process.

The only exception to the debt-is-not-typically-dischargeable-rule that is worth noting is that it is sometimes possible to discharge income tax debt that is a few years old. If the taxes came due over three years ago, and you filed your tax returns on time, and you did not commit fraud, it might be possible to have some or all of the older income taxes you owe forgiven. You will, however, still owe any penalties the IRS imposed that are related to the debt.

If you have a lot of non-dischargeable tax debt that you are struggling to pay off, you should ask your bankruptcy attorney about negotiating a settlement or entering into an installment payment plan with the government. This obviously isn’t as helpful as having that debt forgiven, but it can help you get your finances under control so you can move forward without stressing about how you will ever pay off what you owe.

Another tax-related thing that your bankruptcy attorney should help you with is your yearly tax filing. Depending on what chapter of the bankruptcy code you file under, you may need to file a separate tax return on behalf of your “bankruptcy estate.” Your personal return will cover the stuff it usually does while all your debts and assets taken over by the bankruptcy court will be accounted for in the other filing. It is critical that this be done properly or the government can impose harsh penalties.

A Bankruptcy Success Story

Those of us that work at Hanson & Payne firmly believe our bankruptcy system is a force for good. There are of course things we would change about it, but by and large it does what it is supposed to do, and it does it well. It gives people and businesses the promise of a fresh start. The planned opening of three Gander Outdoors stores in the Milwaukee area this year is a great example of what we mean.

Kenosha, Sheboygan, and Waukesha will all see former Gander Mountain stores that closed when that company filed for bankruptcy re-open as Gander Outdoors stores this year.

The turn-around comes courtesy of Marcus Lemonis, who you may have seen on CNBC’s “The Profit,” and the bankruptcy system. Lemonis has built an outdoors adventure and lifestyle empire by acquiring several smaller companies who were struggling to compete with the Cabela’s and Bass Pros of the world. He is presumably gaining market share and expertise through his purchases that will allow him to compete with the big guys. But he wouldn’t have been able to do what he is doing as well as he is doing it outside of the bankruptcy system.

The bankruptcy system gives those who have filed the ability to restructure and rethink. It can minimize financial pressures that stifle innovation. And it allows owners to step back and reflect on how best to move forward.

Our firm works with a lot of companies that are contemplating bankruptcy, so we know that it can be hard to appreciate these benefits when all you can think about is the fact that you might be going out of business. We understand that bankruptcy is not easy or exciting choice when it is your business.

We all mourn a bit for the Kenosha County-founded catalog retailer that grew into that local Gander Mountain store with the white gander flying against a red backdrop. But it is also exciting to consider that instead of being lost to history, the company has been reborn and will continue to serve lovers of the great outdoors in our area.

Americans Are Currently Late On More Than $600 Billion In Bills

Americans Are Currently Late On More Than $600 Billion In Bills

If you are in debt, you are not alone. America is a nation that was literally built on debt, and whose citizens continue to rely on debt to improve their lives. The most recent data on debt shows American citizens are $13.15 trillion in debt, and that over $600 billion of that debt is delinquent.

Debt has been a part of our country’s fabric from the start. It was Alexander Hamilton’s idea to bind the former colonies, now states, to the new nation they created after the American Revolution by having the states’ war debt transferred to the fledgling federal government. And bankruptcy laws were some of the first laws passed by Congress.

After the Revolutionary period, debt became an important tool for our nation’s growth. It was hard to purchase property or start a business without going into debt. The same remains true today. Few people can make large purchases or chart a new course for their life without taking on debt.

The Federal Reserve Bank of New York’s Center for Microeconomic Data keeps a close eye on consumer debt and uses it as an indicator of how well the nation’s economy is doing. The latest data goes through the end of the 2017 calendar year.

It reveals, “Aggregate household debt balances increased in the fourth quarter of 2017, for the 14th consecutive quarter, and are now $473 billion higher than the previous (2008Q3) peak of $12.68 trillion. As of December 31, 2017, total household indebtedness was $13.15 trillion, a $193 billion (1.5%) increase from the third quarter of 2017. Overall household debt is now 17.9% above the 2013Q2 trough.”

This means that consumers are taking on debt at pre-recession levels. This is a good thing because it shows that consumers are hopeful about the future, and that banks are willing to lend people money again.

The New York Fed also breaks the debt out into different categories: mortgage debt, home equity lines of credit, student loan debt, auto loan debt, and credit card debt. Another thing the Fed does is look at the amount of debt that is delinquent.

“As of December 31, 4.7% of outstanding debt was in some stage of delinquency. Of the $619 billion of debt that is delinquent, $406 billion is seriously delinquent (at least 90 days late or “severely derogatory”).” This just goes to show once again, that if you have debt you are struggling to pay off, you are not alone.

And you don’t need to face the consequences alone if you fall too far behind on your debt. Our firm helps people and businesses take advantage of the bankruptcy laws, helping prove that debt, bankruptcy, and the recovery process are all perfectly normal.

Is the Milwaukee Area a Hotspot for Bankruptcies?

Milwaukee Area Still A Hot Spot For Bankruptcies

The number of bankruptcies filed across the country continues to decline, but in the Milwaukee area, a lot of families and businesses are still in distress.

Thanks to the Great Recession, more bankruptcies were filed in 2010 than in any other year. Since that year, the number of bankruptcies filed each year have declined, including in 2017. The latest data from the Administrative Office of the Courts reveals 789,020 cases were filed in 2017, compared with 794,960 in the previous year. This number of bankruptcy filings is the lowest for any calendar year since 2006, and the seventh consecutive calendar year that filings have fallen. However, this is a decline of just 0.7 percent from 2016, the smallest year over year decline since the 2010 peak.

The tables below provide a snapshot comparison of 2017 and the previous few years, and a breakdown of filings by Chapter by year. Remember, Chapter 7 is a “clean-slate” bankruptcy for individuals, families, and businesses, where debts are wiped away. Chapter 11 gives businesses the opportunity to restructure their businesses, while Chapter 12 is for farmers. Chapter 13 is a repayment plan bankruptcy for individuals and families that allows many filers to get caught up on their bills over a period of 3 to 5 years.

BUSINESS AND NON-BUSINESS FILINGS,
YEARS ENDING
DECEMBER 31, 2013-2017
Year Business Non-business Total
2017 23,157 765,863 789,020
2016 24,114 770,846 794,960
2015 24,735 819,760 844,495
2014 26,983 909,812 936,795
2013 33,212 1,038,720 1,071,932

 

TOTAL BANKRUPTCY FILINGS BY CHAPTER
YEARS ENDING
DECEMBER 31, 2013-2017
Year Chapter
  7 11 12 13
2017 486,347 7,442 501 294,637
2016 490,365 7,292 461 296,655
2015 535,047 7,241 407 301,705
2014 619,069 7,234 361 310,061
2013 728,833 8,980 395 333,626

Personal bankruptcies continue to outpace business bankruptcies, and there are still more Chapter 7 cases than any other type of case despite the fact that Congress attempted to push people toward Chapter 13 the last time they made changes to the bankruptcy code.

Although the number of bankruptcies are falling across the country, there are still a disproportionately large number of cases being filed in the Milwaukee area.

The table below summarizes the data on bankruptcies in the Milwaukee area and statewide in 2017 by chapter.

TOTAL BANKRUPTCY FILINGS IN THE MILWAUKEE AREA
FOR THE YEAR ENDING

DECEMBER 31, 2017 BY CHAPTER

County Chapter Total
  7 11 12 13
Milwaukee 3,935 3 0 2,646 6,584
Ozaukee 109 1 0 48 158
Racine 447 1 0 265 713
Sheboygan 204 0 0 46 250
Waukesha 508 2 1 334 845
Statewide 12,041 37 45 5,006 17,129

As you can see, almost half of the bankruptcies filed in Wisconsin are filed in the Milwaukee area. Our area is just not recovering as quickly from the Great Recession as the rest of the state and the country as a whole. This is frustrating, but it should also be viewed as a sign to people in the area that are struggling with financial issues that they are not alone – our entire region is struggling.