2013 Foreclosure Statistics

Don’t be another statistic.  Call me today to find out how Chapter 13 Bankruptcy can help save your home from foreclosure.
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Total
Brown 62 57 51 52 49 47 46 55 43 57 38 53 610
Calumet 14 10 6 13 5 4 8 6 9 8 9 6 98
Door 10 2 7 8 5 7 8 4 7 4 5 2 69
Florence 0 0 0 0 0 0 2 1 1 1 1 2 8
Fond du Lac 24 31 22 13 15 18 19 24 18 20 22 19 245
Forest 2 3 3 3 3 1 4 3 3 3 3 0 31
Green Lake 6 4 4 2 1 5 5 3 7 5 2 6 50
Kewaunee 4 2 6 3 2 6 1 7 1 5 1 0 38
Langlade 6 2 5 3 5 5 2 7 5 7 4 6 57
Manitowoc 30 24 19 16 18 14 20 17 15 16 16 12 217
Marinette 12 11 9 11 10 9 12 13 12 11 10 14 134
Marquette 7 9 4 8 2 5 4 6 4 2 5 8 64
Meonominee 1 1 0 0 0 0 0 0 1 0 1 1 5
Oconto 19 8 8 11 10 7 15 14 12 16 9 14 143
Outagamie 45 50 34 37 25 25 23 46 30 41 29 34 419
Shawano 9 15 14 8 7 3 5 13 10 17 7 7 115
Sheboygan 42 34 32 25 23 43 18 19 25 31 26 29 347
Waupaca 15 17 18 20 18 10 11 11 17 18 13 12 180
Waushara 11 15 10 8 8 6 6 10 10 7 4 7 102
Winnebago 51 39 39 37 37 42 42 36 36 35 38 41 473
NEWI Total 370 334 291 278 243 257 251 295 266 304 243 273 3405

Are discharged debts taxable income?

Does filing for bankruptcy have an effect on your tax return?
Generally, no.
26 U.S.C. § 108(a)(1)(A) excludes from your income any debt that was discharged in a Title 11 (not Chapter 11) bankruptcy case.
There are other exclusions enumerated at 26 U.S.C. § 108, but I leave those exclusions to be addressed by tax law professionals.  Suffice to say, if a debt was cancelled for reasons other than a bankruptcy discharge and one of those other exclusions does not apply to the, you could be taxed on that balance for what is known as “cancellation of debt” income.
26 U.S.C. § 108 is a federal statute, and therefore only applies to income for purposes of your federal tax return.  What the federal government excludes as income may be included in other states.  You will want to talk to an experienced tax professional to determine any tax obligations you may have due to debts discharged in bankruptcy.I am given to understand that the State of Wisconsin generally follows the federal standards for including and excluding income, which means that Wisconsin taxpayers should also experience no adverse tax impacts from filing for bankruptcy.  However, I have heard reports in a couple of isolated cases where the Wisconsin Department of Revenue included income that was discharged in bankruptcy.  These cases were dealt with by tax attorneys, and I have heard no news on the results in those cases.  It isn’t clear yet whether the taxpayer simply misunderstood the tax assessment, whether there were special circumstances in these cases, or if the Wisconsin Department of Revenue was “testing the waters” to expand their powers.  If and when I hear news on these cases, I will – of course – share them.Suffice to say, most bankruptcy debtors experience no issues with their state taxes, and until we learn otherwise, these instances should be considered flukes.

Filing a Case Properly

This article expands on a topic I mentioned briefly last week – the difference between filing a case and filing a proper case.  The difference between the two is often the difference between a painless (if not boring) bureaucratic process and a painful headache and nightmare.
I would estimate that 90% of the nightmare cases I have witnessed have fallen into one of three categories.  (1)  The debtor did not have an attorney.  (2)  The debtor hired an attorney that merely dabbles in bankruptcy from time to time.  (3)  The case was rush-filed as an emergency or “skeletal” petition.
While there is no law that requires someone to hire an attorney to file for bankruptcy (also known as proceeding pro se), it is highly inadvisable to do so.  Even in the simplest of Chapter 7 cases, there is more to bankruptcy than just filling out a few forms.
Why do people file without an attorney?  Some genuinely cannot afford to hire an attorney, but those people are often un-collectible and don’t really need to file for bankruptcy (their wages are too low to be garnished or they qualify for state aid that protects them from most detrimental collection actions).  Most, however, can afford to pay for an attorney – they just don’t want to.  “I don’t like lawyers.” or “I don’t want to pay money to a lawyer.”
Bankruptcy attorneys should be seen as an investment.  Relative to the amount of debt that a typical person can and will have discharged in bankruptcy, the cost of an attorney is a pittance.  And attorneys do a lot more than just fill out forms.
An experienced and competent bankruptcy attorney will help in exemption planning (arranging your exemptions in such a manner to maximize the amount of property that can be protected) and means testing (correctly determining how much disposable income you have to pay unsecured creditors and maximizing your allowed deductions).  Experienced bankruptcy attorneys will also know the statutes that are relevant to your case, stay on top of relevant case law, know the federal and local rules, know the deadlines you have to watch out for, know documents that need to go to the trustee, be able to identify the issues that could cause problems for your bankruptcy case, and know how to avoid or mitigate those issues.
Filing a Chapter 13 case pro se is even more difficult.  You’ll need to be able to review claims, draft a confirmable plan, and – sometime over the course of 3-5 years – likely have to respond to objections, motions to dismiss, or motions for relief, or amend your plan.  Motions work is very common in Chapter 13, and you have to be aware of the notice requirements to creditors and other interested parties.
Bankruptcy is a very complicated field of law – moreso than it might appear on its face.  There is so much more to be aware of than what you will ever glean from the official bankruptcy forms.  When you hire an attorney, you are paying for his experience and expertise.  Yes, we can make bankruptcy appear to be extremely easy.  That’s not because bankruptcy is easy.  It’s because we have spent our careers implementing procedures and policies into our law practices designed to make our cases flow smooth and fluid.  We know that our clients don’t want to undergo a nightmare, so we use our training and our experience to lessen the hassle for our clients.
Don’t count on filing a case pro se and then hiring an attorney later if and when it becomes too much to handle, either.  Most attorneys I know (including myself) won’t get involved in a case they didn’t file.  These cases get too sticky, between compensation, deadlines, and the requirements of the attorney once he or she enters an appearance.
That explanation covers people who file without an attorney or people who hire an attorney that is inexperienced in bankruptcy.  What about the emergency / skeletal petitions?  Well – keeping in mind what I said – that bankruptcy is more than just filling out a bunch of forms – in order for an attorney to perform due diligence and prepare a quality case, it is best if you do not impose on an attorney to rush file a case.  If you know that you’re in financial trouble – talk to an attorney now.  Don’t wait until the last minute.  Give your lawyer plenty of time (I recommend six weeks) to do the case right.  You’ll be glad you did.

Deadline to Stop Foreclosure

In states that have a short redemption period – like Michigan – one would expect that last-minute bankruptcy filings to prevent foreclosure would be common.  I have consistently been surprised, however, at how many people wait to file at the last minute in a state like Wisconsin, where the typical redemption period is at least six months.
And mind you – that’s just the redemption period.  It doesn’t count the 2-3 months of missed mortgage payments before a foreclosure case is ever filed.  It doesn’t count the 4-6 weeks before there is a judgment of foreclosure.  It also assumes a normal foreclosure timeline.  Many foreclosure cases – almost inexplicably – drag on for many more months or even years longer than they should.  I’ve seen cases held open for nearly 4 years.
Some homeowners look at bankruptcy as a sort of “last resort” option and they spend the bulk of their redemption period legitimately looking for non-bankruptcy options to save their home.  (This is fine, by the way – but you should get your ducks lined up ahead of time.  In case you do need to file bankruptcy to stop the foreclosure, you will want to have consulted with an attorney long before the last minute so that a case can be prepared properly.)  However, over my many years of practice, I’ve gathered that the vast majority of homeowners file at the last minute because they have spent their redemption period with their heads in the sand – hoping that the problem would resolve itself.  (Hint for those of you considering that strategy: it doesn’t work.)

Side Note: Certain decisions simply should not be rushed into.  If you need to file bankruptcy to save your home from foreclosure, I personally recommend that you give your attorney at least six weeks of lead time.  Why?  Certainly not because it takes that long to prepare a case.  However, there is a difference between filing a case and filing a case properly.  If you actually want your case to go smoothly and succeed, you’re going to want your case filed properly.  It doesn’t take six weeks to draft schedules or any of the other things involved in preparing a case.  But you should give your attorney six weeks for two reasons.  First – so your attorney isn’t rushed.  So your attorney has plenty of time to review your case, to make sure that all T’s are crossed and I’s are dotted, to make sure that all supporting documents have been assembled, etc., etc., etc.  The second reason is actually for your benefit.  Rushing into Chapter 13 is a bad idea.  It’s a 3-5 year commitment that requires adherence to a disciplined budget.  Giving at least six weeks’ notice will give you ample time to prepare yourself for what you’re about to commit to.

All right – all that preaching aside – let’s hit the actual point of this article.  When must a bankruptcy case be filed to stop foreclosure?
As is often the case, we start with the statutes. 11 U.S.C. § 1322(c)(1) guides us here.

Notwithstanding subsection (b)(2) and applicable nonbankruptcy law — a default with respect to, or that gave rise to, a lien on the debtor’s principal residence may be cured under paragraph (3) or (5) of subsection (b) until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law.

Read plainly and literally, it would seem that you must file the bankruptcy case before the sheriff’s auction.  However, Judge Kelley ruled that debtors could redeem a property from foreclosure up until the date the sale is confirmed by the state court (this is typically about 2 weeks after the sheriff’s auction).

Debtor defaulted on the monthly payments of his home mortgage with the creditor. The creditor commenced a foreclosure action and a court entered a judgment of foreclosure. After a six-month redemption period, the creditor purchased the property at a sheriff’s sale. Before the foreclosure sale could be confirmed by the state court, debtor filed a Chapter 13 petition. In his Chapter 13 plan, debtor proposed to resume making regular monthly payments to the creditor on the mortgage, and to pay the pre-petition arrearage through the Chapter 13 trustee. The creditor objected on the ground that debtor could no longer use Chapter 13 to cure the mortgage default and reinstate the mortgage. In overruling creditor’s objection, the court held that under state law debtors retained the right to redeem property at any time prior to sale, and that the sale occurred upon confirmation by the court. The court held that, because debtor could redeem after the foreclosure sale and before confirmation, debtor could cure his defaults utilizing 11 U.S.C.S. § 1322(c)(1).

In re Wescott, 309 B.R. 308 (Bankr. E.D. Wis. 2004)

So, the technical answer (unless Wescott should ever some day be challenged and over-ruled) is that a homeowner can have until the day the sheriff’s sale is confirmed to save their home in bankruptcy.However, I advise my clients to treat the sheriff’s sale itself as the deadline.  If we’re going to run it to the wire, I prefer to know that we still have about two more weeks to file the case if there is critical information still missing by the time of the sheriff’s sale.
It is important to note that Judge Kelley arrived at this decision after a careful analysis of Wisconsin state foreclosure laws, and in comparing them to Illinois state foreclosure laws (the mortgage lender had cited Colon v. Option One Mortg. Corp., 319 F.3d 912 (7th Cir. Ill. 2003), which had a different result).  Therefore, this decision applies only to Wisconsin cases.  If you are a homeowner in another state – consult with an attorney licensed in your state to determine what the rules are in your jurisdiction.

Coming Changes for Bankruptcy

Some big changes are coming down the pipe for bankruptcy.  Typically – we will see very minor changes in forms once a year in December.  This year (2013) we saw a dramatic change in Schedules I & J (income and expenses).
Schedule I introduces some interesting changes.  There are now lines dedicated to making a distinction between mandatory retirement contributions, voluntary ones, and repayments on retirement loans.  Expenses relating to business and rental income have been moved from Schedule J to Schedule I – so your net profits are what end up displayed on forms.  There is also now a separate line for what we refer to as “household contributions”.  This is “income” arising from other people (such as roommates, unmarried partners, children with jobs, friends, or other relatives that contribute to household expenses from their funds.
Information concerning dependents has been moved to Schedule J – you’re also required to indicate whether your claimed dependents actually live with you or not, and whether you are paying the expenses of non-dependents.
On Schedule J, groups of expenses have been grouped together a little better.  Telecomm utilities have been lumped together.  Food has been lumped together with “housekeeping supplies” which I found a little odd.  Personal care products (soaps, shampoos, shaving kits, dental products, etc.) and services (e.g. haircuts) have been given their own slot.  Perhaps I find that new arrangement odd because we used to have a separate line under miscellaneous expenses for ‘personal grooming and household supplies’.  Transportation is now specifically defined to include public transit and maintenance.  Entertainment is now defined to include subscriptions and club memberships.  Again, under the old forms, we had some of these items broken up on separate lines.
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Schedules I & J are basically early releases.  Most if not all of the remaining bankruptcy forms will be revamped come December 2014.  These changes have been touted as “form modernization”.  Essentially, most of these forms are getting considerably longer than they were previously.  As it is, the average set of bankruptcy forms that we file is about a 60-80 page packet (depending on the number of individual creditors).  From what I’ve been hearing, these new forms could easily inflate the packet to about 100-120 pages.  Time will tell.
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By December 2015, we are expecting to see a new National Model Chapter 13 Plan, and use of said plan is expected to be mandatory.  I think it’s pretty clear this is a move that favors creditors – many of which have national operations, but receive a wide array of plans from 94 districts, and not all districts have a mandatory model plan.
A national model plan will make it easier for creditors to find information that they are looking for, and for more uniform understanding of plan provisions.  What will undoubtedly concern bankruptcy practitioners (and should concern debtors) is that a model mandatory plan could end up curbing certain district customs.  I don’t want to speculate on what those are going to be.  Suffice it to say, I’ve reviewed an early draft of the model Chapter 13 plan, and I made quite a few notations of possible conflicts with the way we do things here in the Eastern District of Wisconsin (certain customs and practices which we have statutory freedom to do).  As the draft goes through revisions from attorney feedback, we’ll get a firmer idea of what the plan will look like, and whichever concerns I still have at that time, I’ll bring up so as to give people an opportunity to file before the plan takes effect in December 2015.
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Not all of the changes will be bad.  There is a rumored change to the Federal Rules of Bankruptcy Procedure that I am particularly excited about.  Currently, the deadline to file a proof of claim is 90 days after the first meeting of creditors (which is itself usually 4-6 weeks after the bankruptcy case is filed).  The government gets 180 days from the date the case is filed.  And the rule does not apply at all to secured creditors.
The rumored change will establish a bar date to file claims that is 60 days from the date the case is filed and it will apply to secured creditors.  I have not heard yet as to whether the government bar date will change.  I assume that they will continue to have more time than general creditors, but I suspect their deadline may be shortened a little as well.
This news sucks for creditors but is great for debtors.  Under the existing framework, there really was no way to know if a plan was feasible by the time of the hearing, when the trustee recommends for or against confirmation.  In certain cases where the trustee was not confident of feasibility, or when the amount of claims might greatly control the required plan payment, or where there was doubt as to the amount of claims, the trustee would sometimes withhold a recommendation and adjourn out beyond the bar date.  This didn’t happen often, but it happened enough to be irritating.  Technically, the feasibility of all plans is unknowable until the bar date passes, but nobody wants to wait 3 months for a plan to become comfirmable.
Under this new structure, the bar date will be about 2-4 weeks after the hearing date, which means – worst case scenario – a single one month adjournment should be enough to check feasibility.
If the trustee recommends for confirmation before the bar date passes (as happens now, and I suspect may continue to happen), then debtors can take comfort in the fact that they will know much sooner whether their plan payments need to be adjusted to account for any unanticipated or underestimated claims.  In short – they won’t have been paying for 5 – 6 months before they know whether their plan needs to be adjusted.
If you ask me – that’s win-win, and I’m excited for that particular change.  I wish they had implemented it this year.

Statutes of Limitation on Debt Collection

Often, my clients believe that certain debts are uncollectible because the debt is very old.  They are, of course, referring to “statutes of limitation” which put time limits on how long one can wait before commencing a legal action against someone else.  The general thought behind statutes of limitation is that people shouldn’t be haunted by certain conflicts many years after they first arose.
Wisconsin laws concerning civil limitation statutes are found in Chapter 893.  Each state has its own statutes of limitation (some are longer, others are shorter).  Which state’s laws are applicable?  Generally speaking, it will be the state in which the contract was executed or the state where the action is commenced (or attempted).
The first myth to dispel is the notion that you no longer owe a debt, just because the deadline to file a lawsuit has passed.  Statutes of limitation impose restrictions on filing lawsuits.  Creditors may still attempt nonjudicial methods of debt collection (assuming a bankruptcy stay / discharge hasn’t intervened), though their options are limited.
Actions to collect on a previous judgment or court decree must commence within 20 years of the entry of judgment.  (Wis. Stat. sec. 893.40)
Actions to collect domestic support must commence – roughly – before the child reaches age 38.  (Wis. Stat. sec. 893.415)
Actions to collect on general contracts – oral and written – must commence within 6 years of the date the cause of action accrues.  (Wis. Stat. sec. 893.43)
Actions to collect for property damage must commence within 6 years of the date of the cause of action.  (Wis. Stat. sec. 893.52)
Actions to collect for personal injury must commence within 3 years of the date of the cause of action.  (Wis. Stat. sec. 893.54)
A limitation can be tolled (suspended, and therefore extended) by lawsuit or injunction.  (Wis. Stat. sec. 893.13 and 893.23)
If you continue to make obligations on a debt obligation, the statute of limitations may be extended.  (Wis. Stat. sec. 893.45 and Lyle v. Esser, 98 Wis. 234 (Wis. 1898)).
Generally, if a debt is incurred fraudulently, the limitation could be extended to within a reasonable period of time for the aggrieved party to become aware of the fraud.