Retirement Announcement

In a letter addressed to all of my current clients sent earlier this week, I have officially announced my upcoming retirement.  Atty. Jon Olson will be taking over my practice effective July 1, 2017.

The letters provide details about the transition and what to expect over the next three months. A lot of work has gone into the retirement plan to ensure a smooth transition. It was important to me in doing this that my clients experience little to no disruption as a result of my retirement.  We’ve planned the transition so that it will almost be as though Atty. Olson and I had been partners in the same firm all along – minimal change.

It is still possible for any existing client whose bankruptcy case has not yet been filed to have their case filed before July 1.  Pre-filing procedures and requirements are unchanged.

Those who wish to meet Atty. Olson before July 1 may join us for a meet-and-greet at my office on Friday, June 9, 2017, from 2 pm – 4:30 pm.

Those who do not want Atty. Olson to take over working on their case must follow the instructions contained in the announcement letter I sent out.

Effective immediately, I am no longer accepting new clients (nor reopening any old cases).

This will also serve as my final blog post.

Tax Return (& Other eDoc) Submission Guidelines

‘Tis the season when I receive dozens of tax returns from my Chapter 13 Bankruptcy clients, as they are required to do each year that they remain in bankruptcy.

But it’s not just my pending Chapter 13 cases.  I receive electronic documents via e-mail from many of my clients throughout the year.  For the most part, there are no issues.  But occasionally there are, and I wanted to go over some of the most common issues to help reduce the number of problematic submissions.

Keep in mind that almost every document I request from my clients (including tax returns, pay-stubs, mortgages, and car titles) will ultimately be turned over to the trustee assigned to their case for review.  A lot of these rules and guidelines are intended to facilitate that transmission.

Do not photograph a document with your cell phone or camera.

The folds, shadows, reflections, and low resolution are all likely to be problems.  Scan documents with a proper scanner.  If you do not have a scanner, please just mail or drop-off a print copy.

Ensure scanner settings create a crisp image.

You don’t have to go nuts on scan resolution and create a 12MB file for a one page document.  But make sure that the scan resolution is good enough that we can read the content on the document.  Assume that at some point along the way, an older person with less-than-perfect eyesight needs to be able to read the document clearly.

300 x 300 dpi is sufficient in most cases.  Higher resolutions may be necessary if the document you’re scanning already has print quality issues or is printed in a small font.  Always open the scanned document and check the quality of the scan.

Save as a PDF, not an image.

You’ll be forgiven if you e-mail a .PNG or .JPG file, but it saves some time and reduces pixelation from multiple file conversions if documents are originally generated as .PDFs.  Free PDF printer drivers are readily available to download from the Internet.

Do not send password-protected documents.

This is a common problem with electronic tax returns, which are encrypted to protect sensitive information.  Even if I have the password, the encryption will prevent me from redacting the social security numbers (and any bank routing or account numbers) from your tax return, which I need to do before I can relay the document to the trustee.  The encryption also prevents me from printing the document to paper, so I can’t even re-scan it and then redact the numbers.

I care about protecting your confidential information, but ironically, the password protection prevents me from properly securing your document before transmitting it to the Trustee.

Ideally, electronic documents should be scanned versions of printed paper.  There is meta data encoded into the original digital file, and the best way to scrub that data clean is to print the file to paper and then scan the paper.

Do not use 3rd party cloud services.

Assuming that I can even access the file (which is hit or miss), many of these files will be encrypted or password-protected – inhibiting the redaction and printing functions described above.

Also, some cloud services require me to register an account to use them.  For the hundreds of clients I have, I cannot possibly (and won’t) create separate accounts just to access an electronic file.

If sending paper documents that aren’t already stapled, please don’t staple them.

Chances are, I’ll need to scan the documents, and staple holes tend to make papers stick together and jam in the scanner.  The fewer staples I need to remove, the better.

Only a few pages of tax returns are necessary.

There are only a few pages of a tax return I’ll need.  In most cases, each year of a tax return is 5 pages.  That’s two pages for the federal 1040 form and three pages for a standard Wisconsin Form 1 tax form.

If applicable, I also need federal schedules – especially any Schedule C, Schedule D, Schedule E, or Schedule SE.  These are mostly for people who run businesses, are otherwise self-employed, or have rental income.

I do not need cover sheets, summaries, comparisons, W2s, 1099s, worksheets, or other extraneous pages unless I specifically request them for some special reason.

When in doubt, send me everything and I’ll sort it out. But if you don’t want to send a 50 page document, know that there are usually only 5 pages I’m looking for each year.

New Judge

Brett H. Ludwig has just been appointed to a 14 year term on the Bankruptcy Courts for both the Eastern and Western Districts of Wisconsin.

Judge Ludwig’s appointment restores the Eastern District to its complement of four judges that I’ve been accustomed to over the past ten years.  When I first began practice, our courts were served by the Hon. Pamela Pepper, Margaret McGarity, Susan Kelley, and James Shapiro. In that time, Judge Pepper has been appointed/promoted to serve on the District Court, Judges Shapiro and McGarity have both retired, leaving Judge Kelly as the only remaining judge from when I began practice. And to replace the other three, G. Michael Halfenger, Beth Hanan, and now Brett Ludwig have all joined the court.

Straw Loans

Straw loans are what happens when someone purchases a product (such as a vehicle) or otherwise incurs debt for the benefit of someone else.  This is pretty common among family members.  Someone with bad credit or no credit may rely on a friend or relative to get the vehicle or loan on their behalf, and make payments to the lender.

There are a few issues with straw loans – and some that are specifically problematic in bankruptcy, so let’s discuss some of these.

Problem #1 – The Loan Might Be Illegal

Notwithstanding state laws designed to curtail fraud, individual contracts may prohibit the incursion of a straw loan.  Many mortgages and auto loans are granted with the condition that the borrower be the homeowner or primary driver. If the home or vehicle is purchased for someone else’s use, that could violate the terms of the contract.

Problem #2 – The Person Whom the Loan Benefits Isn’t Improving Their Credit by Payments Made on a Straw Loan

Although the beneficiary of a straw loan gets the immediate benefit of the vehicle or cash borrowed, the payments they make on the loan is not doing anything to help out their credit, since they are not on the loan.  In contrast to loans with cosigners, only the person who legally incurred the debt is being affected credit-wise. To the extent payments are being made, that will help their creditworthiness, but the actual incursion of the debt (plus – god forbid the loan go into default) will damage their creditworthiness.

Problem #3 – Insider Preference Issues in Bankruptcy

If you are the beneficiary of a straw loan (meaning someone bought a home or vehicle or something else for you), and you’re making payments on that loan, these payments are either insider preferences (if payments are made to the person who got the loan for you) or preferences benefiting an insider (if payments are made directly to the lender).  Either way, the trustee in your bankruptcy case may be able to sue the insider (the person who got the loan for you) to recover that preference payment you’ve made to them or on their behalf.  In essence, you are paying on someone else’s debt.  Whether you reaped the benefit of the loan is immaterial – legally, on paper, it is not your debt.  From the bankruptcy court’s perspective, you should be paying your own debts before you attempt to pay someone else’s debt.

As always – WORDS ON PAPER MATTER.  The informal agreements that commonly exist between family members do not trump what appears in black-and-white on a credit agreement.

Problem #4 – Household Contribution Income

Let’s take problem #3 and switch the roles.  Instead of it being the beneficiary of a straw loan filing for bankruptcy, let’s say it’s the person who got the straw loan who needs to file for bankruptcy.  If that’s you, and your family member is paying you to pay a debt that is – ON PAPER – legally YOUR DEBT, then you are receiving what we refer to as “household contribution income”.  For people who are near or above median, this can result in you having to pay more to unsecured creditors than you would otherwise be required to pay.

2016 Foreclosure Statistics

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Total
Brown 36 36 39 23 26 25 19 30 35 14 33 25 341
Calumet 6 8 5 6 4 5 3 8 4 5 4 3 61
Door 3 4 8 7 3 1 2 2 7 2 2 2 43
Florence 0 1 1 0 2 1 0 0 0 0 0 1 6
Forest 1 2 0 0 2 1 1 0 1 1 1 4 14
Kewaunee 3 3 2 4 2 3 1 11 3 3 4 4 43
Langlade 1 10 11 3 5 3 3 10 3 1 5 2 57
Manitowoc 10 16 15 10 16 7 5 10 10 10 16 12 137
Marinette 9 4 10 10 4 4 3 8 9 6 4 6 77
Menominee 0 0 0 2 0 0 0 0 0 0 0 0 2
Oconto 11 7 9 4 4 4 10 3 7 7 3 4 73
Shawano 7 11 7 6 3 4 6 5 8 6 11 5 79
NEWI Total 87 102 107 75 71 58 53 87 87 55 83 68 933
STATE Total 822 893 945 824 728 666 636 808 779 625 768 639  

Trustee Garcia’s free financial management course has been discontinued.

All bankruptcy debtors must complete two counseling courses – one in credit counseling in order to be eligible to file bankruptcy and a second in financial management in order to be eligible to receive a discharge.

For years, Trustee King (retired) and his successor Trustee Garcia have offered a free financial management course to Chapter 13 debtors who have been assigned to them.  I have not charged my Chapter 13 clients for the financial management course on the assumption that they would enroll in this free course.

However, on account of dropping attendance figured, this free course is being discontinued.  The last course will be held in Oshkosh next month.  Accordingly, those who have not yet completed the second counseling course (or those whose cases aren’t even filed yet) will need to take the course through a different provider.

Yearly Reminders

As we get our feet firmly planted into 2017, this is a courtesy reminder of periodic changes…

  1. If you own real estate and your bankruptcy case is not yet filed, you will need to provide a copy of your 2016 property tax bill (which would have been issued in December 2016).  If you previously submitted your 2015 tax bill, it is no longer useful.
  2. Although 2016 income tax returns are not due to the IRS and Wisconsin Department of Revenue until April 2017, Chapter 13 cases filed after December 31, 2016 cannot be confirmed until the 2016 tax returns are filed.  So, if you’re expecting to file a Chapter 13 case in the near future – file your 2016 tax returns ASAP.
  3. If you are filing Chapter 7, you should provide a copy of your 2016 tax returns if they are filed before your bankruptcy case is filed.  2016 tax returns will be required for any bankruptcy case filed after April 15, 2017.
  4. The winter moratorium on power shut-offs ends on April 15, 2017.  If you are delinquent on paying your utility bills, talk to a bankruptcy attorney now and get your case ready to file ASAP.  Do not wait until April to decide you need to do something – you won’t be the only person rushing to file to avoid a shut-off.

Voicemail Tag

I take pride in the fact that as a solo practitioner, I can speak to my clients directly without them having to run a gauntlet of call center staff.

Unfortunately, the physical laws of the universe prevent me from being in all places at all times.  Sometimes, when a client calls me, they get my voice mail because I am in court, talking to another client, or on the phone with someone else.  But unless the call clearly does not require a response, I will return all messages as soon as I get them.

I am continuously baffled by some people’s reluctance to use voice mail. If I don’t answer the phone, it’s not because I’m ignoring you. Hanging up and calling and hanging up and calling in rapid succession doesn’t magically teleport me back from court; and if I’m meeting with a client, the rapid-fire calls are a real nuisance.

Call once, leave a message, and I will return your call (or e-mail you, if an e-mail is more appropriate) as soon as I get your message.

And if you do get my voice mail, actually tell me what you’re calling about.  That way – in the off chance I call you and get YOUR voice mail (because you also cannot be in all places at all times), I can at least get an answer to you without having to play voicemail tag.

Minimalism

Merry Christmas!

In the spirit of the holiday, I thought that I would veer slightly off-topic from bankruptcy law, but I think many of my clients may find value in this post as they work to recover financially.

I suppose this post would have been more appropriate before Christmas or – better yet – before Black Friday.  But this idea can be implemented at any time of the year, and if you’re hoping to get special mileage out of it at Christmas, you can begin laying the groundwork for next year’s holiday now.

Last year, one of my New Year’s resolutions was to have more experiences in 2016 – specifically manifesting as more travel and other work that I enjoy doing on the side.  Around springtime, I was introduced to the concept of “minimalism” and have embraced it as a method of clearing out clutter to help me focus and make room for more important things.

Minimalism is not about living in a “Spartan” home with no furniture or luxuries, though some people who practice minimalism do prefer that sort of environment.

Minimalism is about intentional living – retaining material possessions only if they bring value to your life, and removing clutter (both material and ethereal) to make room for important things.  There is no right way to be a minimalist, and if minimalism is something that you find value in, you ultimately decide how that will manifest itself.

The Minimalists: Joshua Fields Millburn (left) and Ryan Nicodemus (right)

That being said, there is plenty of help out there for people who need or want advice.  My favorite resource – bar none – is a podcast run by Ryan Nicodemus and Josh Millburn (“The Minimalists“).

As of the time I’m drafting this post, there are 44 episodes – most run about an hour long.  I don’t recommend that you spend the next 2 days binge-listening to these episodes, but I’ve made a list of some of my favorite episodes – ones that I think will quickly get you up to speed on what minimalism is and do a much better job of articulating the philosophical principles than I can.

  • Episode 1: Declutter
  • Episode 2: Technology
  • Episode 4: Education
  • Episode 5: Priorities
  • Episode 11: Sentimental
  • Episode 15: Consumerism
  • Episode 19: Mental Clutter
  • Episode 21: Travel
  • Episode 27: Passion

The reason I thought about sharing this today is because the holiday season does tend to be a great source of stress – not just for my clients, but for many people.  There’s the stress of purchasing gifts, receiving gifts that have no value to you, coordinating holiday celebration schedules with family, friends, and coworkers, and so forth.  Christmas is supposed to be one of the happiest times of the year, but – due to market forces, social forces, and many more influences – it has become one of the most despised times of the year.  And I think minimalism has a lot to offer people in terms of scaling back expectations and giving people the freedom to voluntarily remove stressful elements.  If you’re looking to get particular help with Christmas, you might also be interested in…

  • Episode 38: Giftgiving
  • Episode 41: Holidays

But beyond Christmas – minimalism can help you financially by changing the way you purchase and consume goods.  You can train yourself to be more deliberate with the things that you bring in to your life, and it doesn’t take a rocket scientist to understand how that can have benefits to personal finances.  So I hope my bankruptcy clients can find extra value in minimalism.

Prime Rate

Historically, the prime rate was something that changed several times per year.  That was true until the market crash and recession in 2008 when – in December 2008, the prime rate was adjusted to 3.25% and remained unchanged for over 7 years.  Then, the day after the 7 year anniversary of its last change (on December 17, 2015), prime rate finally budged off its historic low by a quarter percentage point to 3.50%.  Almost one year later, it has risen another quarter percentage point, now standing at 3.75%.
But the more interesting item is that the federal reserve anticipates raising the rate three more times (presumably by similar gradual increases) in 2017.  So by the end of the year next year, we’re likely going to see a prime rate of 4.5% interest.  This still isn’t terrible.  Rates were at 8.25% in 2006, and if you go back to 1984, they were as high as 13%.
What does that mean for you?  Well, generally, it means that it will become more expensive to borrow money in the future.  Specifically in bankruptcy, it means that the “Till interest” rate (the rate used to pay certain secured debts – mostly vehicle loans and other loans secured by personal property in Chapter 13) will go up slightly, since the “Till” rate is based on the prime rate.
Again, a quarter point interest rate hike isn’t a huge amount.  For a thousand dollar loan over 5 years, the added amount paid in interest is only about $7.  But that number obviously compounds for larger balances (say a vehicle with an outstanding balance of $20,000), and the difference between prime rate last week and prime rate a year from now will likely be a full percentage point.  So that same $20k auto loan could be more than $550 more expensive if your bankruptcy case is filed a year from now.
So with that in mind – a little extra incentive – if you need to file Chapter 13 Bankruptcy for any reason – to get your case filed sooner rather than later.  The applicable Till rate is based on the prime rate at the time the case is filed.