Vol. 77, No. 11, November
The Decision to File
There are a myriad of considerations that may enter into a decision to
file a bankruptcy. However, for the run-of-the-mill consumer debtor,
there are usually only a few. The first is the extent of the
debtor's income and assets. A debtor who has no assets that can be
seized or income to garnish is "judgment proof" and will not
benefit from a bankruptcy. On the other hand, a debtor with significant
nonexempt assets may not be best served by any bankruptcy.
The second consideration is whether the debtor has a sufficient amount
of dischargeable debt to make a bankruptcy worthwhile. The amount of
dischargeable debt, not the total debt, is the key. Many debtors wish to
keep their homes and vehicles and reaffirm those debts. If the debtor
does not have sufficient disposable income to pay the debts to be
discharged within a period of time acceptable to creditors, the debtor
will likely benefit from a bankruptcy.
Another consideration is whether there are alternatives to bankruptcy.
For example, many credit card creditors will accept a lump sum payment
of 20 to 75 percent in full settlement from debtors in financial
trouble. Some debtors are able to obtain sufficient funds from their
assets or from loans from friends or relatives with which to settle
their problem debts. Also, some attorneys believe a proceeding under
Wis. Stat. chapter 128, "Creditors' Actions," is a viable
alternative to bankruptcy.
Finally, the effect on the debtor's future credit is a
consideration of some debtors. A bankruptcy often will negatively affect
a debtor's credit. The extent and duration of the impact on the
debtor's credit depend on many factors, such as how much the debtor
wishes to borrow, when the amount is borrowed (how long after the
bankruptcy), and the debtor's financial condition when the credit
application is made. In fact, however, most debtors have a poor credit
history, which a bankruptcy cannot harm substantially.
Choice of Bankruptcy Chapter
Chapter choice is too complex to fully discuss here. However, attorneys
representing consumer debtors must deal with this very important issue,
because there are significant advantages and disadvantages to each
chapter. Additionally, 11 U.S.C. section 341(d) requires the trustee in
a Chapter 7 bankruptcy to examine the debtor to ensure the debtor is
aware of the debtor's ability to file under a different chapter.
There are four chapters in the Code: 7, 9, 11, and 13. (The former
Chapter 12, under which only family farmers could file, is no longer
available; however, it is in the legislative process of being
resurrected and may be by the time this article is published.) Only
municipalities may be debtors under Chapter 9. Chapter 11 is a very
involved, formal procedure aimed at business reorganizations; it is
virtually always inappropriate for consumer debtors. Therefore, consumer
debtors are faced with choosing between Chapters 7 and 13.
While Chapter 13 is useful in a variety of situations, most often a
Chapter 13 bankruptcy is used to reinstate a mortgage on a home in
foreclosure or to pay debts that are not dischargeable in a Chapter 7
bankruptcy. Most consumer debtors do not need to do either and,
therefore, Chapter 7 is the chapter of choice.
Chapter 7 Bankruptcy Debtors: Going for Broke
Bankruptcy is a debt relief procedure created and governed by federal
law. Therefore, there should be no difference in filing a Chapter 7 in
one federal district or another; however, in practice, there are
differences between the districts. For example, the local rules of the
Western District of Wisconsin differ from those of the Eastern District.
An attorney must always refer to the local rules.
The primary sources of bankruptcy law are the Bankruptcy Code1 and the Federal Rules of Bankruptcy Procedure
(collectively, the "Code"). There are numerous useful
secondary resources that attorneys can consult when representing
debtors. For example, practice manuals such as Henry Sommer,
Consumer Bankruptcy Law Practice (National Consumer Law Center
Inc. 2000, supp. 2003), and The Attorney's Handbook on Consumer
Bankruptcy and Chapter 13 (Argyle Pub. 2003), and its companion
manual, the Bankruptcy Issues Handbook (Argyle Pub. 2004), both
by John H. Williamson, are all excellent references. Wisconsin
practitioners should not be without Ginsberg & Martin on
Bankruptcy (Aspen Pub. Inc. 4th ed. 2001) by Robert E. Ginsberg
and Robert D. Martin. (Judge Martin is the Chief Bankruptcy Judge for
the Western District of Wisconsin.)
Web sites such as the Eastern and Western District Court Web
sites2 also provide valuable information.
Organizations such as the National Association of Consumer Bankruptcy
Attorneys,3 the Commercial Law League of
America,4 and the American Bankruptcy
Institute5 provide tremendous amounts of
information to both members and nonmembers. Members of the State Bar of
Wisconsin Bankruptcy Section should visit
www.wisbar.org/sections/bankruptcy and sign up on bicrlistserve, an
invaluable question-and-answer forum used by practitioners.
Several excellent seminars are presented regularly in Wisconsin. The
State Bar's Bankruptcy Update and the CLEW Debtor-Creditor
Conference are held each year. The Northwestern Bankruptcy Institute,
also sponsored by the State Bar, is held biannually in Eau Claire.
Finally, an attorney would be well advised to make inquiries of
experienced bankruptcy attorneys. Many are more than willing to lend
their hard-earned experience to others. Much of my early training came
informally from this wellspring of knowledge. A good resource to use in
seeking this kind of help is the State Bar's Lawyer-to-Lawyer
Directory, published each January in the Wisconsin Lawyer
111 U.S.C. §§ 101-1330.
3National Association of Consumer Bankruptcy
Attorneys, 2300 M St., N.W., Suite 800, Washington D.C. 20037.
4Commercial Law League of America, 70 E.
Lake St., Suite 630, Chicago, IL 60601.
5American Bankruptcy Institute, 44
Canal Center Plaza, Suite 404, Alexandria, VA 22314.
Get the Latest on Bankruptcy Law at the
State Bar CLE Seminars Annual Bankruptcy Update
Bankruptcies are here to stay. Although total personal and business
bankruptcies fell to 1.6 million last year, that figure is still more
than five times the average yearly rate sustained during the 1980s.
Americans currently carry about $9 trillion worth of debt, and 30% of
Americans believe that they will always be in debt.
With these statistics, and the fact that bankruptcy filings have become
more complex, it is imperative that bankruptcy practitioners stay
abreast of the law. At the State Bar CLE Seminars 2004 Annual
Bankruptcy Update, Wisconsin's federal judges and
experienced practitioners discuss the most current issues concerning the
complexities of business and consumer bankruptcies, disturbing trends in
bankruptcy fraud, dealing with marital property issues, determining if
retirement accounts can be exempted from bankruptcy, and more.
Whether you represent creditors or debtors, businesses or individuals,
you won't want to miss this program.
Eastern District, video seminar, Friday, Dec. 10, in
Green Bay, Milwaukee, Oshkosh, Racine/Kenosha
Western District, video seminar, Thursday, Dec. 9, in
Eau Claire, Hudson, La Crosse, Madison, Rhinelander, Superior,
Tuition is $199; this full-day program qualifies for 7.0 CLE credits /
1.0 EPR credit, and will be submitted for Minnesota CLE credits.
For more information, or to register, call