A refresher on Wisconsin consumer bankruptcy options

According to data compiled by the U.S. Courts, consumer bankruptcy rates are steadily falling across Wisconsin and around the country. This correlates with the rate of America's economic recovery, which has been sluggish at times but continues to improve. That being said, slow housing price turnarounds, rising medical costs, and record widespread student loan and credit card debts have left many people struggling financially.

Some people will be able to turn their financial situation around with time and hard work, using payment plans, careful budgeting, loan modification or secondary sources of employment to pay down their debt. For others, the typical debt management options are simply not enough. However, there is still hope for a fresh financial start for individuals in need of serious debt relief: a consumer bankruptcy filing.

A bankruptcy filing not only helps people clear the financial slate in the long-term, but it also puts an immediate stop to harassing debt collectors, repossession actions and foreclosures through a feature known as the "automatic stay."

The majority of consumer bankruptcy filings in America are under two unique provisions of the U.S. Bankruptcy Code: Chapter 7 and Chapter 13. Both of these options provide extensive debt relief, but they have different approaches.

The basics of Chapter 7

Chapter 7 bankruptcy is a popular option for those facing unmanageable debt but do not have a steady income. It offers comprehensive relief from a number of secured and unsecured debts, including medical, credit card and consumer loan debts. Chapter 7 has the advantage of being the quickest bankruptcy option, sometimes allowing for discharge of debts in as little as a few months.

Chapter 7 provides debt relief by liquidating (selling) non-exempt assets, then using the money earned to pay creditors. Contrary to a common misconception, Chapter 7 bankruptcy does not mean selling off everything you own; the majority of necessary personal assets like the family home, a reliable vehicle, clothing, home furnishings and work-related equipment are exempt from sale.

Some important things to consider about Chapter 7, though, are the fact that it is only available to people who pass what is known as a "means test" to assess their financial situation and it does not usually discharge tax debt, student loans or child support arrearages.

The basics of Chapter 13

Chapter 13 is often the best fit for people who have a consistent source of income but are dealing with more debt than they can manage. Chapter 13 is what is known as a "repayment bankruptcy," and it works by consolidating eligible debt into one monthly payment that the filer will pay for a number of years (typically three, four or five years), after which remaining eligible debt will be discharged.

Chapter 13 takes longer than Chapter 7 to conclude, because the bankruptcy case isn't closed until the end of the repayment period. That doesn't mean that a filer has to wait until the end of the repayment plan to begin rebuilding their credit, though. Most filers start repairing their credit in about a year, and their credit is better in the end since they no longer have huge debt balances, overdue payments or repossession/foreclosure actions on their credit report.

Like Chapter 7, Chapter 13 also has limitations; it too cannot discharge most student loan, tax and child/spousal support debts.

Do you need more information about a Wisconsin bankruptcy filing? Want to learn more about different debt relief options or how different bankruptcy provisions work? Seek the advice of an experienced bankruptcy attorney in your area today.