Foreclosure filings in the state of Wisconsin jumped up 27% over July to a four month high last month. In August, foreclosure filings for Brown County (Green Bay) increased 58%, up almost triple in Calumet and Marinette, more than tripled in Langlade, up ten-fold in Kewaunee, and doubled in Manitowoc.
No one expects the average person without legal training and experience to be an expert on bankruptcy. I have, however, encountered a number of questions in the past couple of weeks that demonstrated a fundamental misunderstanding of what bankruptcy is and how it works. So I thought now would be a good time to clarify a few things.
“Am I likely to win my bankruptcy case?” OR “How will the Trustee decide if my bankruptcy goes through or not?”
Bankruptcy is NOT an adversarial area of law – at least not in the vast majority of cases. Bankruptcy is highly bureaucratic, and although it technically doesn’t fall into the realm of “administrative law”, that’s basically what it is.
In bankruptcy, an individual files a petition with the bankruptcy court. Once filed, a discharge is PRESUMED to be the end-result, and really only doesn’t happen in a small set of circumstances and mostly only if/when a creditor or other party objects to that discharge.
Assuming you’ve hired an attorney to determine that you meet eligibility requirements, disclosed all of the relevant information, provided all of necessary paperwork, etc. – the rest of process should be relatively simple. A lot of “pro forma” stuff to make sure all of the i’s have been dotted and t’s crossed. There are opportunities for creditors to file objections, or for the Trustee to object to exemptions, or for disputes over the Means Test. But in the majority of cases, these things never happen. A good and experienced bankruptcy attorney will have already litigated the case before he files the bankruptcy case, ensuring that whatever issues may affect your bankruptcy case and your ultimate result have been addressed or mitigated in some way before the petition is filed.
In other words, this isn’t a “win” or “lose” situation. You get the discharge automatically unless someone steps in and objects to the discharge. Furthermore, the Trustee doesn’t make any sort of determination about your discharge or qualifications. Trustees (especially in Chapter 7) are there to take your testimony and look for assets or preferences that he/she can recover – that’s it. The scope of their duty is extremely limited.
“How do my creditors get paid?”
There MIGHT be payments to unsecured creditors if you file Chapter 13, or if your Chapter 7 case has non-exempt assets or recoverable preferences. Also, you might reaffirm secured debts or other debts might not be dischargeable, and therefore you’ll remain responsible for them after your case is filed. But I’m not talking about any of these exceptions.
There is a common misconception that whatever is “discharged” in bankruptcy must be paid from somewhere. And that is not the case. A bankruptcy discharge is basically a formal court order that requires most of your creditors to write-off the debts you owe them without being paid, and to cease and desist any further collection efforts for those debts.
Creditors make their money from interest and other miscellaneous fees they charge, and if a lender’s business is doing well, those forms of revenue will wash out any debts that get discharged in bankruptcy.
“How/when does the judge determine what debts are discharged?”
Again, I’m going to stick to Chapter 7 just to keep things easy and clean. Many of these questions get a bit more complicated when we talk about Chapter 13.
Most debts are dischargeable. This includes secured debts, such as mortgages and auto loans. Most people will “reaffirm” on secured loans (and continue to pay them) in order to retain the collateral that secures the loan. Reaffirmed debts are not discharged by virtue of the reaffirmation agreement.
Apart from that, the bankruptcy code specifically lists all of the types of debts that are not dischargeable. That list can be found at 11 U.S.C. § 523. It’s a pretty long list, but for most people, there are only three types of debts that aren’t discharged: student loans, certain taxes, and domestic support obligations.
Of the items listed under section 523, all of them except for three are statutory. That means that if you owe a student loan, it is automatically not part of the discharge. Your student loan creditor is not required to go to bankruptcy court and have their debt declared non-dischargeable – it’s automatic. No judicial determination required.
If a creditor asserts that their debt is non-dischargeable under any of those subsections, and you disagree, you can file an action with the bankruptcy court for a violation of the discharge injunction, and then have the court rule whether or not the debt in question is non-dischargeable.
There are only three subsections of 523 that require a judicial determination: 523(a)(2), 523(a)(4), and 523(a)(6). 523(a)(2) is for fraudulently-incurred debt. 523(a)(4) is for fraud committed while acting in a fiduciary capacity. 523(a)(6) is for willful or malicious injury. Any creditor who wants their debt declared non-dischargeable under one of those three subsections must get the judge to make a ruling in their favor.
I’m writing this article to address the bewilderment some of my clients have about the fact that their bankruptcy hearing location is at an airport. Understandably, some of them feel that the bankruptcy process is illegitimate or some sort of a scam on account of it. So I’m going to explain why some hearings are held at the airport and why they aren’t held somewhere else.
But while I’m at it, I also thought this would be a good opportunity to answer some other common questions about bankruptcy hearing locations.
The first thing that is important to understand is that bankruptcy is a matter of federal law and the federal court system, not state law and the state court system.
There are 72 counties in the state of Wisconsin, each with their own state-level courts. However, the state of Wisconsin only has two federal districts – the Eastern District of Wisconsin and the Western District of Wisconsin. The border between the two districts follows county lines, and a map showing the border is below.
|Eastern District in red; Western District in green.|
The county you reside in not only determines which federal district you’re filing in, but it also determines where your hearing location will be. For instance, a resident of Milwaukee county will attend hearings in Milwaukee. However, there are only a handful of hearing locations, and there is not a hearing location in every single county. Therefore, the county you reside in is not necessarily the county in which your hearing will be held. For example, someone residing in Appleton (Outagamie County) will have their hearing in Oshkosh (Winnebago County) because there is no hearing location in Outagamie County.
To give another example – Green Bay is the northern-most hearing location in the Eastern District of Wisconsin, so the residents of about a dozen counties (Brown, Calumet, Door, Florence, Forest, Kewaunee, Langlade, Manitowoc, Marinette, Menominee, Octonto, and Shawano) all have their hearings in Green Bay.
When I describe these hearing locations, I’m referring to the “§ 341 Meeting of Creditors” (coloquially referred to as a “341 hearing” or just “meeting of creditors”). (Don’t let the name scare you – creditors almost never make appearances at these hearings, and in the rare instances that they do, it’s even rarer that their appearance signifies a problem in your case.) None of what I’m describing includes judicial hearings. Describing the hearing locations for judicial hearings gets really complicated given all of the various videoconference and telephone hearings that are allowed, the different types of judicial hearings, and so forth. And since the overwhelming majority of people who file for bankruptcy will never have to appear at a judicial hearing (or meet their bankruprcy judge, for that matter), describing the judicial hearing locations is an unnecessary layer of complexity. Just know that I’m only talking about the 341 Hearings and that in the off chance you have to attend a judicial hearing, the location will almost certainly be somewhere else.
The 341 Hearings / Meetings of Creditors are what we refer to as an “administrative hearing”. They are presided over by trustees, not judges. They are seldom ever held in actual courtrooms. More often, they are held in meeting spaces and conference rooms in governmental buildings. For example, Chapter 7 cases in the Oshkosh location are held in a meeting room in the Winnebago County courthouse. Green Bay hearings are held in rooms at the state office building or city hall. Milwaukee hearings are held at the federal courthouse, but in conference rooms, not courtrooms.
Which brings us to Wittman Regional Airport – the odd duck out. Chapter 13s assigned to the Oshkosh hearing location (folks from Outagamie, Winnebago, Waupaca, Waushara, Green Lake, Marquette, and Fond du Lac counties) are held in the closed-off gate area at Wittman Regional Airport.
Many years ago, they were also held at the Winnebago County Courthouse, just like the Chapter 7 cases were. About 8 or 9 years ago, the hearing locations were moved to the airport. As I understand it, there were frequent scheduling conflicts with the Winnebago County Courthouse that caused the change of venue. But why the airport and not another location? Well – that seemed to be a matter of pragmatism for the Chapter 13 trustee, whose office is located on the other side of the freeway from the airport. In contrast to Chapter 7s where there is a rotating bench of panel trustees – there are only two Chapter 13 trustees in the Eastern District – and only one of them gets assigned all of the cases for the Green Bay and Oshkosh locations. So in this instance, convenience seemed to be the driving point for the selection of Wittman.
It’s admittedly an unconventional choice, but it serves its purpose: a private and quiet meeting area that is publicly accessible where the trustee can hold hearings. If you’re unfamiliar with Wittman, it is a very tiny and unused airport 51 weeks out of the year – and hearings are purposely not scheduled during the week of the EAA Airventure.