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.