By Randi L. Osberg
December 14, 2009
Governor James Doyle recently signed Senate Bill 259, which created 2009 Wisconsin Act 80 (the Act) and greatly increased exemption levels for property that individuals can retain from execution or seizure by judgment creditors or a bankruptcy trustee. The bill passed with little visible opposition from bank or other financial institution lobbying groups.
The exemption law had last been revised in April of 1986. Under existing law, debtors were able to retain $40,000 of equity in their homestead. However, married couples were limited to the same $40,000 amount, creating an incentive for divorce.
The legislature took this opportunity to not only deal with that perceived inequity, but to also revise the non-homestead exemptions. Again, these changes were adopted with nominal opposition. Under the new law, exemption in the homestead property has been increased from $40,000 to $75,000 and now each spouse can claim the exemption (for a total of $150,000 of exempt equity in a homestead for a married couple). The Act also increases the business and farm property exemption from $7,500 to $15,000 and further adds a new exemption for interests in closely held business entities such as limited liability companies. Previously these interests in closely held businesses were subject to attachment by creditors.
The Act also includes the following provisions:
- The consumer goods exemption was increased from $5,000 to $12,000, and the motor vehicle exemption was increased from $1,200 to $4,000 for each debtor.
- The depository account exemption was increased from $1,000 to $5,000, and the personal injury award exemption was increased from $25,000 to $50,000 and was clarified to make the exemption applicable to each claim of injury for each debtor.
Businesses attempting to collect obligations from individuals will now be faced with these greater hurdles before they can collect from recalcitrant customers. In addition, there is an unintended consequence to the business property exemption increase: under the Bankruptcy Code, debtors can avoid non-purchase money security interests in certain consumer goods and “tools of the trade” of the debtor. In the case of farmers, this has been interpreted to include any farm equipment and has been extended as far, in some cases, as mechanized vehicles.
A cautious lender will now need to factor in the fact that a married couple may be able to avoid up to $30,000 of non-purchase money security interests in equipment and should thereby reduce credit available to debtors to take into account this significantly increased risk. In making credit decisions for individual customers, businesses should keep in mind these expanded exemptions and the resulting difficulty in collecting should a customer stop making payments on an account. These exemptions can be asserted relative to state court actions and are not applicable solely in a bankruptcy proceeding. In other words, a customer may assert these exemption rights against a judgment holder without having to file a bankruptcy petition. The new law will become effective December 16, 2009. Financial institutions and all other parties who extend credit should keep these new rules in mind when making credit decisions.
If you have questions regarding the above, please contact Randi Osberg, the author of this article, or any of the attorneys in the Business Transactions Practice Group of Ruder Ware.
This document provides information of a general nature regarding legislative or other legal developments, and is based on the state of the law at the time of the original publication of this article. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations, or issues, and additional facts and information or future developments may affect the subjects addressed. You should not act upon the information in this document without discussing your specific situation with legal counsel.
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