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This article discusses whether it is better to file for Chapter 7 bankruptcy in Wisconsin or Chapter 13 bankruptcy in Wisconsin.

Key Takeaways

This article discusses whether it is better to file for Chapter 7 bankruptcy in Wisconsin or Chapter 13 bankruptcy in Wisconsin.

A Chapter 13 is better to a Chapter 7 in a number of scenarios. If you are behind on your mortgage or business payments and wish to keep your property, whether in Wisconsin or another state, at the end of the bankruptcy procedure, you must file a Chapter 13 bankruptcy. A Chapter 13 bankruptcy permits you to make up missed payments over time while also restoring your original mortgage agreement. A Chapter 13 petition may be a better alternative if you have valuable property that is not covered by your Wisconsin bankruptcy exemptions and that you want to maintain. People also declare Chapter 13 bankruptcy because they earn too much money to qualify for a Chapter 7 bankruptcy or have debts that are not dischargeable in a Chapter 7 bankruptcy (e.g. certain taxes).  

However, Chapter 7 is the most appealing option for the vast majority of Wisconsin citizens who just want to get rid of their hefty financial burden without paying anything back.  

Information on Chapter 7 Bankruptcy in Wisconsin:  

In a Chapter 7 bankruptcy, your debts are discharged and you are given a "Fresh Start." A liquidation in Chapter 7 bankruptcy is when the trustee collects all of your assets and sells any that aren't exempt. The trustee sells the assets and pays any exemptions to you, the debtor. The liquidation's net proceeds are subsequently allocated to your creditors, with the trustee managing the distribution taking a commission.  

Alimony, child support, fraudulent debts, some taxes, student loans, and certain things charged are among the debts that cannot be erased in a Chapter 7 bankruptcy. The debtor in most Chapter 7 cases owes a lot of money on credit cards and other unsecured debts and has few assets. In the vast majority of circumstances, a Chapter 7 bankruptcy will be able to wipe out all of these debts completely.  

By reaffirming certain secured debts, such as your car, furniture, or home, you can keep them. You must sign a voluntary "Reaffirmation Agreement" to do so. If you elect to keep your house, car, or furnishings and reaffirm the debt, you will be unable to bankrupt (or wipe-out) the debt for another eight years. You will still owe that debt, and you must continue to pay it, just as you were required to do before filing for bankruptcy. You must also bring the debt current in order to reaffirm it. To put it another way, if you're three or four months late on your payments, you'll need to make up the difference. You can reaffirm your debts selectively, for example, stating that you want to keep the house and furniture but return the car and jewelry to the appropriate creditors.  For more information on Chapter 7 bankruptcy in Wisconsin read our article, How to Prepare to File for Chapter 7 Bankruptcy in Wisconsin.

Reaffirmation agreements can be canceled 60 days after they are filed with the court or when the court issues an Order of Discharge.  

The following are some of the benefits of filing a Wisconsin Chapter 7 bankruptcy:  

  • You have a whole new start. The only debts you'll have after the bankruptcy is for secured assets for which you choose to sign a "Reaffirmation Agreement."  
  • On the date of filing, you are protected from creditors' collection activities and wage garnishment.  
  • Wages and property acquired after the bankruptcy filing date (excluding inheritances) are yours, not the creditors' or the bankruptcy court's.  
  • There is no requirement for a certain level of debt.  
  • In most cases, your case will be completed and you will be released in 3-6 months.  

Disadvantages of a Wisconsin Chapter 7 filing include the following:  

  • Your non-exempt property is sold by the trustee, and you lose it. Chapter 7 is not a possibility if you want to maintain a secured item, such as a car or a home, and it is not totally covered by your Wisconsin bankruptcy exemptions.  
  • If you are facing foreclosure on your property, the automatic stay imposed by your Chapter 7 filing is merely a stopgap measure.  
  • Unless they also apply for bankruptcy protection, co-signors of a loan may be stuck with your debt.  
  • If you previously filed a Chapter 7 bankruptcy case and secured a discharge of your obligations, you can only file a second case eight years after the first one.  
woman working on bankruptcy paperwork

Information on Chapter 13 Bankruptcy in Wisconsin:

A debtor submits a 3-5 year payback plan to creditors in a Chapter 13 bankruptcy, pledging to pay off all or part of the obligations from the debtor's future income. You can utilize Chapter 13 to avoid foreclosure on your home, make up missing vehicle or mortgage payments, pay back taxes, stop interest from accruing on your tax obligation (local, Wisconsin state, or federal), keep valuable non-exempt property (see Wisconsin exemptions), and more. All of your remaining dischargeable debt will be freed at the end of the plan if you can comply to the terms of your repayment agreement (typically three to five years). Several factors influence the amount to be reimbursed, including the debtor's disposable income, which is normally calculated as part of the Wisconsin Means Test. Furthermore, the total amount paid to creditors under the Chapter 13 plan must be at least equal to the amount paid to creditors in a Chapter 7 bankruptcy. You must have a "regular source of income" and some disposable cash to use toward your Chapter 13 payment plan in order to petition Chapter 13 bankruptcy.  

Chapter 13 bankruptcy is typically used by debtors who wish to maintain secured assets, such as a home or automobile, but have more equity in those assets than their Wisconsin bankruptcy exemptions will allow them to retain. A reorganization is a Chapter 13 bankruptcy, whereas a liquidation is a Chapter 7 bankruptcy.  

They can resume the original agreement and make up their overdue payments over time if they file a Chapter 13 bankruptcy. A Chapter 13 bankruptcy may be a preferable alternative for a debtor who owns valuable nonexempt property and wishes to keep it. However, Chapter 7 is the most appealing option for the large majority of people who just want to get out of debt without having to pay anything back.  For more information on chapter 13 in Wisconsin read our article, What You Need to Know About Chapter 13 Bankruptcy in Wisconsin.

Benefits of a Wisconsin Chapter 13 repayment plan include:  

  • You can keep all of your property, exempt and non-exempt, if you wish and can afford the payment plan.  
  • While debts are not eliminated like they are in a Chapter 7 bankruptcy, they can be lowered under a Chapter 13 repayment plan.  
  • You're protected right away from creditor collection tactics and wage garnishment.  
  • There are other debts that are considered dischargeable (including debt you incurred on the basis of fraud and credit card charges for luxury items immediately prior to filing).  
  • Any co-signers are protected from the creditor's efforts if the Chapter 13 plan provides for full payment.  
  • As long as you follow the terms of the plan, you are protected from your lender foreclosing on your house.  
  • You have extra time to pay off debts that neither Chapter can erase (like taxes or back child support).  
  • A Chapter 13 bankruptcy can be filed at any time.  
  • You can file many times.  
  • You can divide your creditors into classes, with various classes receiving various payment percentages. This allows you to consider obligations incurred with a co-debtor differently than debts incurred alone by yourself.  

Disadvantages of a Wisconsin Chapter 13 repayment plan include the following:  

  • You make a payment plan based on your post-bankruptcy earnings. This locks up your money for the duration of the Chapter 13 plan.  
  • Because a Chapter 13 filing is more complicated, legal fees are greater.  
  • Your debt will be paid off in 3 to 5 years if you stick to your strategy.  
  • For the duration of the 3-5 year plan, you are involved in the bankruptcy court process.  
  • A Chapter 13 bankruptcy petition is not available to stockbrokers or commodity brokers.

For more information regarding the difference between the two types of bankruptcy read our article, Chapter 13 versus Chapter 7 bankruptcy.

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June 28, 2021
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