Bankruptcy is legal proceeding that helps a person who cannot pay his or her debts get a “fresh start,” financially speaking.
There are several different types of bankruptcy, each of which is governed by a different chapter within the federal bankruptcy code. The Law Center can help you assess which bankruptcy chapters you qualify for, which chapter is most appropriate for your situation, and what the consequences might be for choosing to file under one chapter versus another. The Law Center can also help you determine the best time to file bankruptcy, depending on what other events might be occurring in your life. For example, we can help you assess whether it is better to file for bankruptcy before or after a divorce or whether you should file jointly with your spouse or individually.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is sometimes referred to as a “liquidation bankruptcy” because filing under this chapter means that the debtor may be required to surrender some assets, which are then sold to pay back creditors. However, a person who files under Chapter 7 is typically allowed to keep certain property, such as a car and home. In order to file a Chapter 7 bankruptcy, a debtor must first meet income requirements, which are dependent on your state of residence and household size.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is an alternative option for someone who does not qualify for a Chapter 7 bankruptcy. Filing under Chapter 13 is also a good option for someone who is behind on debts that are difficult to “discharge” (i.e., get rid of) through bankruptcy (such as some tax debts), but can be paid off over time, or for someone who wants to keep certain assets, such as a home, but has fallen behind on the payments and needs time to catch up. Rather than selling assets to repay creditors, a Chapter 13 plan gives a debtor time to repay debts he or she has fallen behind on through a payment plan that spans a period of three to five years.
Alternatives to Bankruptcy
Wisconsin Chapter 128 Plan
Wisconsin law offers an alternative to filing bankruptcy. Under a “Chapter 128 Plan,” a debtor is able to pay off debts over a three year period under the supervision of a court-appointed trustee. Unlike bankruptcy, you are not required to sell assets to pay creditors and you may pick and choose which debts to include in the payment plan. A Chapter 128 Plan is also not reported on your credit report and therefore, filing for a Chapter 128 Plan does not affect your credit score. However, a Chapter 128 Plan is not a good option for dealing with some types of debts, such as secured debts (e.g., a mortgage) and, unlike a bankruptcy, does not prevent creditors from suing you for outstanding debts during the course of the payment plan.
On the other hand, if you are only behind on one debt or a handful of debts, it may be possible to work out a payment plan outside of court with each creditor.
The Law Center can help you assess whether filing for bankruptcy or a Chapter 128 Plan is in your best interests, or whether you may be able to solve your debt issues outside of court. Contact us to determine what debt relief options may be available to you.
*We are a debt relief agency helping people file for bankruptcy relief under the federal Bankruptcy Code.