UW System Bails Out UW-Oshkosh

Former UW-Oshkosh Chancellor Richard Wells and former Vice Chancellor Thomas Sonnleitner still face 17-and-a-half years in prison and $50,000 in fines for allegedly assuring lenders that the UW System would bail out the UW-Oshkosh Foundation if it defaulted on its loans. But that is exactly what has happened, and it is raising a lot of eyebrows in the bankruptcy world, in academia, and across the state of Wisconsin.

There’s a bankruptcy case, a civil case, and a criminal case all pending because the UW-Oshkosh Foundation, which is a separate, supposedly self-funded entity designed to support UW-Oshkosh 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.

When some of the investments went bust, it was revealed that Wells and Sonnleitner had allegedly promised the Foundation’s lenders that UW-Oshkosh — so students and taxpayers — would back the loans if the Foundation couldn’t make its payments. However, state law prohibits public funds from being spent to benefit private entities.

That being said, it was recently announced that the UW System has stepped up to the plate and agreed to pay $6.3 million to satisfy UW-Oshkosh’s lenders. This is exactly what Wells and Sonnleitner are in trouble for saying would happen, which is an interesting turn of events.

Taxpayers and lawmakers are watching to see exactly where the $6.3 million the UW System will pay is coming from. Academics and college administrators are wondering whether the charges against Wells and Sonnleitner will be dropped.

All of us in the bankruptcy world are interested in this case because this is not the last time we will see a case where lenders believe they have been promised access to assets that someone later says they cannot touch. Many businesses today are really a collection on related entities that work together. It can be unclear what assets are really on the table when a deal is stuck.

That’s where we come in. Our firm wades into the thick of disagreements over who owes and owns what all the time, and we have years of experience settling and litigating such matters. If you are trying to collect a debt and hitting brick wall, or you are trying to fend off an overzealous creditor, we are here to help.

Bankruptcies Force Malls To Get Creative

The mall of the past, which had multiple department stores, a fast-food filled food court, and a handful of smaller speciality stores is dying. But a new type of mall is rising from the ashes. The catalyst for this creative destruction is of course bankruptcy.

When the Sears and Bon-Ton bankruptcies were announced earlier this year, many predicted that mall owners might be the next to file for protection. As we have discussed on this blog many times, one company filing for bankruptcy often sets off a chain reaction, with related retailers or links in their supply chain following suit. Our firm negotiates a lot of business workouts and represents many creditors in the Milwaukee area for this reason.

What we are seeing in the retail industry following the Sears and Bon-Ton bankruptcies is different. Malls are wondering whether they need 3 or 4 huge department stores as anchors when so much traditional department store shopping is now done online or in stand-alone big-box retailers like Walmart and Target.

Some mall owners are looking at their empty spaces and completely reimagining them. A few are subdividing what used to be large stores into smaller spaces. This is a sort of don’t put all your eggs in one basket approach that also capitalizes on the fact that smaller speciality retailers are doing well right now.

Others are remodeling or demolishing former department stores and turning them into co-working spaces, apartments, fitness centers, and hotels. Larger, sit-down restaurants are also being incorporated into many spaces. The all-in-one shopping experience is transitioning into a more complete live-work-play experience.

These mall transformations are certainly different, but they are not that surprising when you think about the fact that department stores were people magnets, and they are being replaced by people magnets that just happen to be something other than a department store.

The bankruptcy process allows creative changes like this to take place. This is the upside of what is often a challenging and frequently frustrating situation. If your business is in trouble, or you do business with a company that appears to be headed for bankruptcy, it is time to talk to an experienced bankruptcy attorney that can help you take advantage of the situation and come out the other side with a plan for moving forward.

To Bankruptcy And Beyond

“To infinity and beyond!” is Buzz Lightyear’s catchphrase in the movie Toy Story, but it is also a helpful way to think about the bankruptcy process. Infinity and bankruptcy both may seem like the end of the line, but, in theory, there’s more out there to explore for those who are brave enough to try.

When one of our Milwaukee-area business clients comes into our office to talk about filing for bankruptcy, all most can think about is the act of filing itself. They aren’t thinking about what it will be like to come out the other side. But there is another side, just like there is something beyond infinity.

While common knowledge would say that there can be nothing beyond infinity, in geometry, if you go beyond infinity, you start coming back to your starting point from the opposite direction. Filing for bankruptcy can be like that as well. Bankruptcy pushes you toward a limit, and when you can go no further, you suddenly find yourself on the other side, with a business that is different, but still alive and kicking.

Need further persuasion that filing for bankruptcy is only the beginning? Take a look at this episode of the NPR podcast Planet Money — you can listen to it or read the transcript. It’s a look at the American bankruptcy system through the eyes of the owner of a chain of appliance stores.

It goes into a lot of detail about the shame Roddey Player felt when he filed for bankruptcy on behalf of the business his father built. All that he and his family had worked for for the past 60 years seemed to be slipping away on his watch, and everyone in town knew about it because the local papers covered the case almost from the minute it was filed. His own son, who was away at college texted him, “you OK?” after hearing the news of the bankruptcy second-hand.

Player was not okay, but his story does not end there. He filed for bankruptcy under Chapter 11, which allows for reorganizations instead of forcing a liquidation. He was able to convince his creditors and the bankruptcy judge that they would ultimately be better off if he remained in business. Today, his company is back on its feet, and is even expanding.

Player and his business went to bankruptcy and beyond, and that is what we help our clients do every day. Not every business owner wants to keep the doors open— and some who would like to are unable to— but enough businesses do make it through the Chapter 11 bankruptcy process to prove that it still works.

Our firm has years of experience shepherding businesses through the Chapter 11 bankruptcy process, and we are always interested in helping others who are not ready to give up the fight. We help businesses go to bankruptcy and beyond!

Wisconsin’s Biggest Distillery Goes Bust, But That’s Not The End Of The Story

Just before Thanksgiving, Wisconsin’s largest distillery filed for bankruptcy. Death’s Door, a company named for the hazardous waterway off the tip of Door County, was at death’s door. But that is not the end of Death’s Door’s story. Like many bankrupt businesses before it, the brand has been bought by an investor who plans to retool and resurrect it.

According to the Wisconsin State Journal, Travis Hasse and Tom Maas, partners in Dancing Goat Distillery in Cambridge, purchased Death’s Door for $2.48 million at the end of a five-hour auction that took 24 rounds and included two other bidding groups. The sale was approved by Judge Catherine Furay in the U.S. Bankruptcy Court for the Western District of Wisconsin in Madison, and will be finalized shortly.

“Death’s Door, founded in 2007, had been using contract distillers to make its products until 2012, when it invested $3 million for the construction of a 25,000-square-foot distillery in a Middleton industrial park… [The new facility had the capacity to] produce up to 200,000 cases a year but the facility did not have a tasting room and production leveled off at about 30,000 cases. In October, Death’s Door, the state’s largest distillery, ended its six-year relationship with Serrallés USA, a Puerto Rican rum importer that helped finance the distillery’s construction. When Death’s Door filed for bankruptcy just before Thanksgiving, it was $6 million in debt to more than 100 creditors, which included about $3.5 million owed to Serrallés.”

Hasse and Maas haven’t released specific details about what they plan to do with the Death’s Door brand, but they say they want to grow the brand within Wisconsin. “That’s what I’ve done with our current brands,” Hasse said. “When I started selling Hasse’s Apple Pie (Liqueur) it’s always been Wisconsin. The backyard is what’s important to us.”

This is great news for Wisconsin, and a great example of how the bankruptcy process can be used to save a company rather than shutter it. Our firm works with lots of businesses in the Milwaukee area who want to use the bankruptcy process to take a pause so they can retool and relaunch.

There is a misconception that filing for bankruptcy means a business will be shutting down. Nothing could be further from the truth. The law is designed to both wind down businesses, and to restart them in a way that will allow them to flourish.

If your business in under financial stress, it may be time to talk to an experienced bankruptcy attorney. Attorneys like the ones who work at our firm can help you determine what your options are. And this goes well beyond bankruptcy. Perhaps you can get by just by renegotiating your loans, or by working out an agreement with your creditors.

Maybe it is not you that is in trouble but a supplier or customer, our firm can help protect your business from being dragged down by someone else in your supply chain. The sooner you take action the better.

Wisconsin Bankruptcy Filings at an All-Time Low

Recently, news outlets reported that bankruptcy filings in Wisconsin have reached an all-time low. This is exciting and encouraging news, as it means that more and more families are finding their way to more stable financial footing. What is behind this decrease in filings and what steps can you take to ensure that you do not need to file for bankruptcy?

What’s Behind the Decrease?

During the peak of the great recession in early 2010, nearly 16,000 Wisconsin consumers and businesses filed for bankruptcy. During the first six months of 2018, roughly 8,800 individuals and consumers filed bankruptcy petitions. This is nearly 45 percent decrease from the peak in 2010.

A number of different factors appear to be contributing to the decreasing Wisconsin bankruptcy filing rates. First, Wisconsin’s unemployment rate is around 2.9 percent, meaning that households are not only seeing more income than they have in recent years but they are also seeing steady income. This is allowing more and more individuals to pay off their existing debts and responsibly assume new debts.

Second, it appears that lenders have gotten much better at helping borrows modify their mortgages when necessary, rather than forcing them into bankruptcy. Many lenders did not have such provisions in place during the great recession and were overwhelmed by the magnitude of mortgage troubles across the nation.

All of this is welcome news for Wisconsin families, but it does not mean that Wisconsin is out of the woods entirely when it comes to needing to file for bankruptcy. Read on to learn about some proactive steps you can take to shore up your finances and recognize the warning signs that you may be at risk of bankruptcy.

Reducing Your Risk of Bankruptcy

It has been said that an ounce of prevention is worth a pound of cure, and that is particularly true when it comes to bankruptcy. Being able to recognize when you are at risk of bankruptcy is one the most important steps when it comes to ensuring you have long-term financial footing. Take some time to sit down with your finances and assess your debts and savings; do you have enough money to carry you through six months of unemployment? If not, now is a good time to start cutting back on spending and increasing your savings.

Additionally, take some time to assess your career and your personal circumstances. Individuals who have been in the same career for a long time are particularly likely to need to file for bankruptcy when their industry takes a hit. The same is true for people who are heading towards divorce or who expect to face significant medical bills in the future. It isn’t fun, but focusing on building your savings now can pay off in a big way down the road.

Need to File for Bankruptcy?

At Hanson & Payne, LLC, we know that no one expects to file for bankruptcy. While the economy is doing better and job market is more stable, we are all just one unexpected life change away from facing financial uncertainty. If that happens to you, our experienced bankruptcy attorneys are ready to help get you through this rough patch in your life. If you need to file for bankruptcy, contact us today.

Should You File for Chapter 7 or Chapter 13 Bankruptcy?

Nobody expects to file for bankruptcy, but when life hands you unexpected and uncontrollable circumstances filing for bankruptcy can be a good way to protect yourself from creditors taking further action against you.

Many people do not know that you can file for two different types of bankruptcy: Chapter 7 bankruptcy and Chapter 13 bankruptcy. Before you file for bankruptcy, it is important to understand which option may be better for you.

Similarities Between Chapter 7 and Chapter 13 Bankruptcy

While Chapter 7 and Chapter 13 bankruptcy are different, they do have some commonalities. First, they are available to you if you need to discharge certain kinds of debt. Second, upon filing for either, they immediately implement a protective stay which prevents creditors from pursuing debt payment enforcement options against you. This affords you a safe harbor in which you can file for bankruptcy and determine a path forward without worrying about having to fend off additional legal actions. Where Chapter 7 and Chapter 13 bankruptcy differ is the income level necessary to qualify to use either chapter, as well as how they treat certain kinds of debts and assets.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is available to individuals who can pass the income level test. Essentially, you qualify for this option if your income is lower than the median family income in Wisconsin. There are some circumstances in which you can qualify if your income is higher, so if your income is higher than the median for Wisconsin families you should consult an experienced Wisconsin bankruptcy lawyer to see if you can qualify.

Most Wisconsin residents who need to eliminate a heavy debt burden choose the Chapter 7 option. With Chapter 7 bankruptcy, you get a fresh start and the only debts you owe after your bankruptcy is discharged are secured assets of your choosing. Additionally, there is no minimum debt required to use this option, and any wages and property you acquire after filing belong to you. Finally, Chapter 7 bankruptcy cases are usually finalized in about six months.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is the only option available to you if you are behind on your mortgage or business payments, and you still want to keep your property at the end of the bankruptcy process. With Chapter 13 bankruptcy, you make up your overdue payments over time and the original mortgage agreement can remain in effect. Additionally, Chapter 13 is the only option for people who have too much income to qualify for Chapter 7 bankruptcy.

With Chapter 13, your debt payments can be reduced under a payment plan and your co-signers are immune from creditor debt collection efforts. You generally have more time to pay off your debts, and you can file for Chapter 13 repeatedly.

Filing for Bankruptcy in Wisconsin?

At Hanson & Payne, LLC, we know that filing for bankruptcy can be a scary, complicated, and emotionally difficult process. Our experienced bankruptcy attorneys will treat you with respect and professionalism and will work with you to help you find the best bankruptcy option to get you on sound financial footing as quickly as possible. If you need to file for bankruptcy, contact the Wisconsin bankruptcy attorneys at Hanson & Payne, LLC, today.

A Hidden Asset Raises Thorny Legal Issues

Who owns a legal claim that is filed after a bankruptcy, but stems from actions that took place before the bankruptcy case was closed? This is the question our federal courts are trying to answer thanks to a Wisconsin woman who recently went through the Chapter 7 bankruptcy process.

Megan Kitchner was sued in small claims court on March 9, 2017. A few weeks later, on March 28, she filed for Chapter 7 bankruptcy. The small claims collection action became part of her bankruptcy case, as all pending and potential legal matters do when someone files for bankruptcy.

Kitchner received her bankruptcy discharge on June 29, 2017, and her bankruptcy case was closed on July 3, 2017. Less than six months later, Kitchner was back in court. She filed a lawsuit alleging that the Kohn Law Firm had violated the Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA) by disclosing her credit score and credit report when it filed its small claims collection against against her in March 2017. She claimed she was eligible for compensation stemming from the alleged violations.

The firm asked the court to dismiss the claims Kitchner had filed against it because it argued that those claims should have been included in the bankruptcy case, and were therefore under the control of the bankruptcy trustee, not Ms. Kitchner.

This is where things get tricky. Kitchner should have told the bankruptcy court about her potential claims against Kohn, even though she hadn’t filed her lawsuit yet. However, even though she didn’t disclose her potential claims and hadn’t filed them yet, they still technically belong to the bankruptcy estate and are under the control of the bankruptcy trustee. The trustee gets to decide whether to pursue the case, settle it, or abandon it and put it back under the bankruptcy filer’s control.

In this case, the court agreed with Kohn that the bankruptcy trustee, not Kitchner, was the true owner of the claims Kitchner had against the firm. However, it was reluctant to dismiss the case. Instead, it instructed Kitchner to either convince the bankruptcy trustee to formally give the case back to her, or to pull the trustee into the case to act as the plaintiff.

Our clients often find it frustrating that we ask so many questions about their lives as we are preparing to file their cases, but this case shows why it is necessary for us to do so. The bankruptcy court needs to know about ALL assets and liabilities, not just the ones you can think of off the top of your head. It can be frustrating and time-consuming to go through your entire life searching for hidden assets and liabilities, but it is important.

This case is also a good reminder of how critical it is to be vigilant about protecting your personal information. You don’t lose your right to keep your personal financial information private just because you file for bankruptcy. But as this case illustrates, you can lose your right to seek compensation for a FCRA or FDCPA violation.

 

The Rebirth Of American Apparel

“Companies are mutating all the time, shutting down departments that aren’t financially viable and discontinuing products that don’t sell. But when a brand is bought out of bankruptcy… it becomes eminently clear what portions of its business still have value, because that’s all that’s allowed to live on.” This quote, which is from an article on the relaunch the clothing company American Apparel, is a very succinct summary of a typical Chapter 11 business bankruptcy.

We would know, because at Hanson & Payne, LLC, we help Milwaukee area businesses retool and relaunch just as frequently as we help them shut down, and it always becomes clear as we work with our clients what portions of their business still hold value.

For many businesses, the real value lies in the business’s brand and reputation. This is what American Apparel discovered after going bankrupt twice. By studying consumer buying habits, they learned that regular people bought their clothes because they were a “cool” brand, not because all of their products were manufactured in America. Wholesalers, however, were buying because American Apparel’s products had that coveted “Made in the USA” label that sports teams and local fire departments want when they order shirts with their logo on the front.

We help business owners figure out what portions of their business hold the most value, and how to move forward with that information. Oftentimes this occurs in the middle of a Chapter 11 bankruptcy proceeding.

When most people hear the word bankruptcy, they conjure up images of a Chapter 7 bankruptcy, where a business’s (or individual’s) assets are liquidated to pay off creditors, and the business is shut down. During a Chapter 11 bankruptcy, however, the business stays open and operates pretty much as normal. Bits and pieces may be shut down or sold off though, and it is through the process of going through all of a business’s assets and figuring out what they are valued at by others as stand-alone entities that many businesses find their way forward.

During its bankruptcy, American Apparel realized it needed to revamp its manufacturing to offer different price points. And that it needed to cut ties with a former leader to generated more lawsuits than business. It closed all its stores, including the ones in Milwaukee and Madison, but it plans to open a new one in L.A. by the end of the year. It is charting a new and radically different path forward. One that only opened up after the company went into bankruptcy for a second time, and was more thoughtful about its future.

It is our goal to help Wisconsin businesses tell a similar story of redemption and rebirth. Our country’s bankruptcy laws exist in order to give people and businesses a second (or third) chance. Business owners should not hesitate to take full advantage of them. Especially in this day and age where monumental changes in consumer preference and the market seem to happen over night, bankruptcy allows one to be nimble and to focus on creating value for the future.

 

Boston Store Is Coming Back

If you have been to one of our local malls recently you will have noticed a big change — all the Boston Stores have gone out of business. The popular department store, which was established in downtown Milwaukee in 1897, and ultimately grew to form the core of the larger Bon-Ton group, filed for bankruptcy back in February. In August, the entire chain, which had corporate headquarters in Milwaukee, liquidated its merchandise and closed its doors.

But just when we all thought it was gone for good, Boston Store announced its comeback. The bankruptcy court signed off on a deal that gives a company called CSC Generation ownership of Boston Store’s intellectual property assets, including the company name, customer data and databases, and social media accounts and content. Almost immediately after the purchase was approved by the bankruptcy court, the Boston Store website came alive, and rumors of a brick and mortar renaissance were rampant.

CSC Generation claims its mission is saving companies from Amazon, and intends to save Boston Store by making some radical changes. It will focus on e-commerce, as is apparent with the relaunch of the Boston Store website, but it also says that it hopes to reopen some brick and mortar locations for the holiday season. However, these stores will be smaller and open fewer hours, just Thursday through Sunday. The stores will also offer services like personal styling and interior design, and allow customers to buy big ticket items via a new lease to own financing system.

Boston Store’s innovative comeback is getting a lot of attention because it is not the traditional return from bankruptcy. A new company is using the old name, but doing things radically different than everyone else in the department store sector. We wish more of the articles on the company’s planned innovations would highlight how going through bankruptcy made this possible.

The flexibility that bankruptcy provides is unmatched. As we have said many times, it is a tool that companies and individuals should be wary of, but should not hesitate to use if other options are limited. Our firm frequently works with businesses who are interested in using the bankruptcy process to retool and revamp.

 

The Ripple Effect

This month marks the tenth anniversary of what is viewed by many as the beginning of the 2008 financial crisis — the bankruptcy of Lehman Brothers. Over the past decade, the ripple effects from the Lehman Brothers bankruptcy spread to countries throughout the world, and to businesses here in Milwaukee, raising awareness that one bankruptcy can lead to many.

The year before it collapsed, Fortune magazine named Lehman Brothers the No. 1 “most admired securities firm” in the country. Today it is the poster child for risky investments and bad decision-making. The company simply held too many subprime mortgages, and when the housing bubble popped, there was no way for it to recover.

Once Lehman fell it was as if everyone was finally able to see that the emperor had no clothes. The federal government pumped over $700 billion into the financial sector to stave off a complete collapse, but still an estimated 6 million jobs were lost, unemployment rose 10%, the Dow Jones Industrial Average dropped an astounding 5,000 points, and bankruptcy filings skyrocketed.

We see a miniature version of this chain of events play out nearly every day. Whenever a business is in financial trouble, all the connected businesses and people are also put at risk. If one goes down, it is likely that others in its supply chain will follow. We work with many Wisconsin business owners who have been negatively impacted by the bankruptcy of a major customer or supplier, who must now act quickly to craft a financial workout and prevent their own downfall.

We regularly help businesses broker forbearance agreements with secured lenders, renegotiate equipment and real estate leases, and negotiate discounts with creditors. Over the years, we have developed strong relationships with the lenders and attorneys whose cooperation and patience are a necessary component of any successful workout. Our tenure in the field has also led to our credibility with the commercial lenders, whose yes or no vote on a workout proposal typically means the difference between an opportunity to recover and a bankruptcy filing.

If your business is teetering on the brink, or you are getting worried because a link in your supply chain has failed, don’t hesitate to reach out. As we are all too aware, recovery from the Great Recession was and is slow and painful. In the Milwaukee area, we just this year dropped to pre-recession levels of bankruptcy filings. In this sort of market, you need advisors you can depend on, and that’s why you can depend on Hanson & Payne.