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We filed a chapter 13 bankruptcy case for a couple we’ll call Larry and Laura. This allowed them to pay their debts off with one monthly payment over a period of 5 years. But things went south for them. Larry lost his job and one of them had to go to the hospital. The co-pays and deductibles were more than they could handle. They could no longer afford to make chapter 13 payments. But they still wanted to get out of debt. So we decided together to convert, or switch, their case to a Chapter 7 even though they weren’t eligible to file for chapter 7 when we first met them. That’s because they were making enough money back then that the Bankruptcy Code would call their case an “abuse” under the “means test”.
The US Trustee didn’t like Larry and Laura’s idea to discharge their debts in chapter 7. That’s because they used to afford a chapter 13 case and five years’ worth of payments. The US Trustee thought it was Larry’s fault he lost his job and that they couldn’t pay their hospital bills.
We help people file for bankruptcy in chapter 7 and for bankruptcy in chapter 13. We help individuals and married couples determine what kind of bankruptcy is right for them. If you are eligible for chapter 7, we help you file for immediate relief. If you are eligible for chapter 13, we help you figure out the lowest payment you are legally required to pay.
Whenever we file a bankruptcy, the Office of the United States Trustee, a part of the Justice Department, reviews the bankruptcy paperwork. What does the US Trustee’s office do? The US Trustee’s job acts as a gatekeeper and make sure that filers are entitled to a “discharge” of debts in bankruptcy. The office also reviews the “means test” and other schedules to see if Chapter 7 filers should be in Chapter 13. Sometimes, they believe someone doesn’t deserve a bankruptcy discharge and in even extreme cases, they will refer cases where people may have committed bankruptcy crimes to be prosecuted by a U.S. Attorney in federal court.
When the US Trustee objected to Larry and Laura “converting” their case from chapter 13 to chapter 7, Lakelaw went into action.
Lakelaw proved to the Milwaukee Bankruptcy Court that Larry and Laura lost income because Larry lost his job. Not only that, we established the hospitalization was something they didn’t want to happen. So even through their original income was very generous, it wasn’t enough to pay creditors now.
The Bankruptcy Judge agreed with Lakelaw, so Larry and Laura are now eligible to file for chapter 7 and get a prompt discharge of most of their debts. The US Trustee’s unreasonable position was defeated. We did this for Larry and Laura as part of our normal services. When you hire Lakelaw for your bankruptcy, we advocate for your interests from start to finish. Count on Lakelaw to stand up for you. The US Trustee acts to fight cases it thinks are wrong, but we fight for people who deserve a bankruptcy discharge. Call or e-mail us to tell you how we can fight for you.
Sam and Sally were victims of payday loans in Wisconsin. The payday lenders were sucking large sums of money from their bank accounts every month. Lakelaw filed bankruptcy for Sam and Sally to stop the payday lenders. The automatic stay for bankruptcy in Wisconsin serves as a legal stop sign. If a creditor tries to collect a debt even after we file a chapter 7 case in Wisconsin or even a chapter 13 case in Wisconsin, Lakelaw can sue that creditor for damages and attorneys fees to make them stop.
Bankruptcy stops payday lenders from collecting. Bankruptcy stops payday lenders from taking money from peoples’ bank accounts. But Sam and Sally’s payday lenders ignored the law. They took money from Sam and Sally’s bank account after Lakelaw filed their bankruptcy. Sam and Sally got hit with bank fees and overdraft charges.
Lakelaw informs creditors after a bankruptcy filing our client has filed a bankruptcy case, whether under chapter 7 or chapter 13. This way, the creditor can’t complain they didn’t know about the case. If they keep collecting anyway, it’s a willful violation of the automatic stay. We also tell our clients to stop any automated withdrawals from their bank account. We frequently tell our clients to close their bank accounts and open new ones so the creditors can’t get their hands on their money.
Most honest creditors stop collection right after we file the bankruptcy case. But Lakelaw will sue and collect from those who insist on doing the wrong thing,
Creditors with no notice of filings might not be willingly ignoring the bankruptcy stay when they act, but if they get notice and still refuse to correct their behavior, a court can rule they were liable for their actions after getting the notice.
Lakelaw helps our clients recover money taken from them after filing, even if it means extra time on the phones and fax lines. It’s part of completely representing our clients from start to finish and providing them with true debt relief.
Lakelaw also protects people after bankruptcy taking advantage of consumer protection laws such the Fair Debt Collection Practices Act, the Telephone Collection Practices Act and by enforcing the discharge injunction. After a bankruptcy is complete, creditors can’t collect on claims which arose before the bankruptcy. Lakelaw insists that such creditors stop. And if they don’t we sue them and collect for our clients.
We also help our clients restore credit after bankruptcy by reviewing their credit reports and correcting errors.
When facing financial crisis, whether in Wisconsin or Illinois, let Lakelaw fight for you. Remember, Lakelaw is your financial life-saver ™. We help people with bankruptcy and foreclosure in Illinois and Wisconsin.
Ask a businessman or attorney outside of Wisconsin about Chapter 128. They will probably shake their head or look confused. But ask Milwaukee bankruptcy attorneys or lenders in Wisconsin, and they can tell how Chapter 128 can be a blessing for debtors and lenders.
Chapter 128 Process for Businesses
Chapter 128 contains two processes that are only found in Wisconsin. The first creates a receivership, with a party appointed (the receiver) to manage a business, sell its assets, pay the creditors, and ultimately liquidate the business or sell it outright. Like a bankruptcy, the filing creates an estate, the business’s assets and the right to receive funds. The receiver acts like a bankruptcy trustee and distributes payments to creditors based on the law’s order of distribution. Administration costs to run the estate; federal, state and local taxes; and employee wages get a higher rank than general creditors who are unsecured and have no liens.
Chapter 128 Works for Individuals Too
The second process creates a receivership for individuals with incomes. This “amortization of debts” by “wage earners” works like a Chapter 13 bankruptcy, with payments made to a trustee and paid to creditors. But it is limited to 36 months (3 years) and only applies to some debts. For instance, we routinely file Chapter 128 plans to pay credit card debt, medical bills, payday loans, deficiencies for surrendered cars, and old utility bills. Our Milwaukee bankruptcy attorneys at Lake Law advise that this would not be an appropriate way to pay on a car loan or a mortgage.
So why choose a Chapter 128 over a bankruptcy? Our Milwaukee bankruptcy attorneys provide some reasoning:
Businesses: Creditors can apply to have a debtor company placed into the receivership involuntarily, meaning against their will. They may prefer this to a bankruptcy and get a receiver they trust to get a business under control before the principals sell assets off. Also, the process can be cheaper than a bankruptcy filing. It may be a win-win for everyone, especially if there are only a few major creditors. It provides an orderly way to wind down and save expensive costs of a lawsuit.
Individuals: For individuals, Milwaukee bankruptcy attorneys look for specific people to benefit from a Chapter 128. People who have repaid family members or friends over the last year and don’t wish to see that money returned to a trustee, people who have valuable assets they don’t want to surrender to the bankruptcy trustee for sale to the creditors, and people with little or no secured debt (or secured debts completely current) and willing to pay a monthly payment to only deal with specific creditors.
As an example, we recently filed a Chapter 128 for a debtor who had paid a relative back for a loan. That relative would probably have been sued by a bankruptcy trustee to get that money back. Also, she had valuable equity in a home and other possessions. She would not have been a good candidate for a Chapter 7, and would have probably paid too much in a Chapter 13 bankruptcy because of her equity. So our Milwaukee bankruptcy attorneys advised her to file a Chapter 128 and pay plan with the most important and pressing creditors.
Contact a Milwaukee Bankruptcy Attorney If You Need Clarification
Chapter 128s don’t work for everyone. They don’t protect the debtor from all creditors and not every creditor understands what a Chapter 128 is, since it isn’t a bankruptcy. But it is often cheaper and more orderly than a bankruptcy or any other attempt to smoothly liquidate a business. Talk to the Wisconsin attorneys at Lakelaw to see whether a Chapter 128 petition is right for you or your business.
As an attorney who’s been practicing in consumer bankruptcy for five years now (in Illinois and Wisconsin), it’s heartbreaking and frustrating to see the huge amount of lies and misinformation about bankruptcy.
Some of these mistakes come from gossip or bad experiences in bankruptcy (including lying, bad attorneys, or other frustrations). Others come from rumors spread by the financial services industry to try to keep people out of bankruptcy (even though lenders can write off the uncollectable debt and take a tax break for it). Even worse are errors from hacks – er, attorneys/writers – who blatantly skew statistics and facts about bankruptcy filings for their own purposes. We can assure you that while nothing is ever certain with the law, the overwhelming majority of bankruptcies are successful, peaceful, and bring financial relief to our clients.
Here are some common statements about bankruptcy and the truth.
Statement 1: Why not just settle debt? It’ll be better for your credit report and you won’t have to pay a lawyer to settle debts for 40-50 cents on the dollar.
Answer: If your sole major debt is a $4,000 credit card and you can afford to pay a lump sum of $2,000, a credit card company may take it and waive the rest. To do so, you’ll have to show you have a serious hardship (not just because you don’t feel like paying) and submit financial records to prove it. You’ll also have to come up with a lump sum or a few significant payments, not a long term payment plan. Unless you’re insolvent, you’ll have to pay tax on the forgiven debt. But in the situation above, that’s fine because bankruptcy’s costs for a lawyer and the filing fees would make a bankruptcy unnecessary. Where bankruptcy absolutely becomes necessary is if you are in the same financial situation but have $50,000 worth of credit card debt and medical bills.
Even if you get every card or hospital to settle for 10 cents on the dollar (an unrealistic goal for most clients), and even if you can avoid the tax on the 1099 for the forgiven debt, that’s still at least 2-3 times what you’d pay for a bankruptcy to discharge the debt altogether. With so much debt, settlement is not only unrealistic, but it costs significantly more than a bankruptcy filing. For an attorney not to disclose that is tantamount to malpractice.
2. You cannot discharge student loans in bankruptcy.
Answer: This is another major misstatement, largely perpetrated by student loan lenders. In order to discharge student loans, there is a very high standard (possibly relaxed by a recent decision in the 7th Circuit Court of Appeals for Illinois/Indiana/Wisconsin) where you have to demonstrate a good faith attempt to make payments and a serious reason why it’s impossible to pay anything back. Essentially the situation is for people who are unable to earn a significant income, will likely never have the means to do so, leaving the possibility of repayment fruitless. That’s a high standard for sure, but it’s by no means impossible. (Think a 60 year old disabled person with only $700 per month in social security/disability coming in, with expenses of $1000 per month and $60,000 of outstanding student loans). With or without an attorney, people have successfully discharged significant private and government-backed student loan debt.
3. I want to file bankruptcy, but if I do, I’ll lose my (car, boat, beagles, RV, bank account, retirement accounts, etc.)
This aggravates me this most because it assumes that the point of bankruptcy is to take everything from the debtor. The exact opposite is true: an honest but unfortunate debtor gets a fresh start (in Chapter 7, or a repayment plan in Chapter 13) in exchange for listing, valuing and exempting assets. Every state has a scheme of exemptions (with some, like Wisconsin, allowing federal exemptions, while others, like Illinois, do not). The easiest way to find out what you can maintain: Talk to a competent bankruptcy lawyer. Call us at Lakelaw or e-mail us. Even if we don’t practice in your jurisdiction, we can refer you to a qualified consumer attorney in another area. You’ll be surprised, but typically 90% of Chapter 7 cases or so are no-asset 7 cases where the filing debtor turns over nothing.
The moral of this story: Speak with an attorney and learn the truth before believing what people write and say to scare people away from bankruptcy. It may not be for everyone, but for most debtors, it’s a huge relief and worthwhile decision.
When a bankruptcy is filed, any schedules and statements that aren’t filed with the basic paperwork are due within 14 days from the case filing. For almost everyone, that is plenty of time to gather paperwork, meet with an attorney, and get the rest of the documents in. The Court may extend the deadline on a motion by the debtor under Rule 1007, but it doesn’t automatically have to grant it. The Court needs “cause”. One judge in the Eastern District of Wisconsin has strongly suggested he won’t grant “boilerplate” motions without support.
Judge Halfenger’s decision in the Brown case expressed frustration when the motion simply stated the debtor was “gathering documentation”. There was no affidavit or explanation why the motion was filed on the very last day with no affidavit or support. In plain English, explain why 14 days is not enough, or the Judge may simply say it’s too late and dismiss the case for failure to file required documents.
Don’t let your case get dismissed. File your schedules on time or have a very good reason why not. Speak to a Lakelaw attorney to determine what falls under “cause” to extend the time frame.
EdVest accounts are 529 College Savings Plans offered in Wisconsin. These accounts, like any other account, are considered assets in a bankruptcy. There are two ways to protect the value in these accounts:
1. Use the wild card exemption offered by the Federal statutes (up to around $11,000)
2. Use the state law exemption in Section 815.18(3)(p) of the Wisconsin Statues
These might seem to solve the problem, but they don’t. This is because a decision out of the Western District of Wisconsin called In re Bronk held that a debtor in bankruptcy cannot exempt the value in an EdVest account using the Wisconsin 815.18 exemption. The District Court in the Western District agreed, and that case is up on appeal right now to the 7th Circuit Court of Appeals in Chicago.
However, a recent case out of Milwaukee’s Eastern District of Wisconsin Bankruptcy Court disagrees with Bronk. In the case of In re Eckerman, Chief Judge Pamela Pepper held that a proper reading of the statute allows for the state protection for a debtor’s contributions to the EdVest Account.
This matter will probably be pursued on appeal in both cases before a final decision is issued. To be safe, stay tuned and be warned if you plan on using EdVest accounts to protect cash in the event of a bankruptcy filing.
A few years ago, the US Supreme Court decided a case called United Student Aid Funds, Inc. v. Espinosa. The decision held that even when a Chapter 13 plan violates the Bankruptcy Code, the creditor must object within a set time or else they won’t get to object later, when the bankruptcy is done. Apparently creditors still haven’t learned.
In a recent decision by Judge Kelley in the Eastern District of Wisconsin, the Court held that the creditor, American Family Mutual Insurance Company, was too late when it moved to reopen a long completed Chapter 13 to challenge an improper plan. Even though the case was completed before the Espinosa decision, the principle still applied.
Creditors who receive a Chapter 13 plan should ALWAYS review them. That is free advice from counsel for Chapter 13 debtors.
“After losing the standing argument in state court, it is beyond frivolous for the Debtors to file bankruptcy, reiterate the same losing arguments and now claim, not only that the Note is invalid, but that the foreclosing creditor and its attorneys are liable for RICO violations for filing the Note as an exhibit to the foreclosure complaint.”
- Rinaldi, et al. v. HSBC Bank USA, N.A., as Trustee, et al. (12-2412, Feb. 22, 2013, Hon. Susan V. Kelley)
As the Eastern District of Wisconsin has made clear over the last year, you cannot litigate and lose a state court foreclosure case, then turn around and relitigate the case in bankruptcy court. The Rooker-Feldman doctrine (as described here in this previous blog post) prevents this second bite at the apple.
This decision was quite thorough because in addition to standard objections to the proof of claim and standing arguments, the debtors/adversary plaintiffs also alleged common law fraud, RICO violations, and other claims against the original lender, the servicer/proof of claim filer, and numerous individuals and law firms. Thus, the judge was required to analyze the merits of each before ultimately dismissing each and every claim.
The moral here: If you believe you are the victim of foreclosure fraud, please contact us immediately. If you have a judgment of foreclosure entered in state court, it is extra important that this be discussed before you decide to challenge it in bankruptcy court. Contact a Lakelaw attorney for more information.
A recent decision in the Eastern District of Wisconsin educates us on the old – preferences – and the new – a novel defense. This will be helpful in both Chapter 7 and Chapter 13 cases.
First – what is a preference?
11 U.S.C. § 547(b) defines preferential transfers.
Section 547 provides that the trustee may avoid (or set aside) transfers of the debtor’s interest in property:
- to or for the benefit of a creditor;
- for or on account of an antecedent debt owed by the debtor before such transfer was made;
- made while the debtor was insolvent;
- made – (A) on or within 90 days before the date the petition was filed; or (B) if the creditor was an insider, on or within one year before the date the petition was filed; and
- that enabled the creditor to receive more than the creditor would have received if – (A) the case were a case under Chapter 7 of the Bankruptcy Code; (B) the transfer had not been made; and (C) the creditor received payment of such debt to the extent provided by the provisions of Chapter 7
How does this work in real life? Let’s take a recent example. This client did not file a Chapter 7 for the reasons below (as well as concerns about equity in her property).
Daughter borrows $20,000 from her father. This is treated as a loan, not a gift. There likely is no written contract, but payments are made regularly and are expected. Therefore, father is a creditor. Prongs 1 and 2 are satisfied. Payments are made in the year before filing, so prong 4 is satisfied. The debtor, while she may have equity in assets, was still likely insolvent due to her high credit card debt, so prong 3 is satisfied. Prong 5 might be a question, because we don’t know what amount her father would have received from the trustee if she filed and held equity. Still, the odds were high that the father would have been sued by the trustee to recover the money she repaid him.
One defense to a preference payment is discussed in a case called In re Grisham.
The defense is called “the ordinary business defense”. How do we establish this?
First, the debt must be incurred in the ordinary course of business or financial affairs of the debtor and vendor. Second, the transfer must have been made in the ordinary course of business or financial affairs of the debtor and vendor. This element is often referenced as the “subjective” test to the ordinary course of business defense Third, the transfer must have been made according to ordinary course of business terms within the respective industry. This element is often referenced as the “objective” test of the ordinary course of business defense. See “In Defense of a Preference,” Business Credit, Sept., 2004, Pages 36-39
This case is important because it establishes that repayment of a personal loan to a family member could fall under the ordinary course defense. Both the Judge and trustee appeared surprised by the arguments of the debtor and the case law they provided. But the debtor ultimately lost because she couldn’t produce any evidence that the loans were in the ordinary course of her uncle’s business. Make no mistake, proving this defense is very difficult and rare. It isn’t often that both a debtor and their family member are both in the business of borrowing and repaying money.
The moral here is that sometimes there are defenses to these preferences. Talk to Lakelaw before filing about pre-filing transfers of money, repayments of loans, and we’ll see if we can argue against a turnover of the money.
I like to offer free initial consultations because I believe it’s only fair to know what your options are before paying for legal representation. I meet with many people who would benefit from Chapter 7 Bankruptcy relief. The only problem is that they are not eligible to file and get a discharge because they filed in late 2005, or 2006, or later.
The rules are very clear and simple: Measured from the date the prior bankruptcy was filed (not converted), a debtor must wait 8 years before filing another Chapter 7 bankruptcy and receiving a discharge.
Sure, there are other options available in the meantime – debt consolidation programs, Chapter 13 Bankrupty plans, Chapter 128.21 Debt Amortizations (for Wisconsin residents). These all require a steady income with disposable money to pay creditors. In this economy, not everyone has that.
My two cents: Meet with me (or another well-trained bankruptcy attorney) and look over your finances. If you make so little money you can’t be garnished, you may simply want to wait to file. If a small Chapter 13 plan payment is possible, that might work as well, but you should never file a Chapter 13 plan unless you know in good faith you can make it work. It’s simply too much time for you, an attorney, the court and trustee, not to mention money and a toll on the system. Also, you should never try to file a Chapter 13 bankruptcy and plan without an attorney – I was in court recently when a judge told a pro se debtor that she wouldn’t even file a bankruptcy without an attorney!
Still, there may be options available. Call us or e-mail us to discuss.
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