Filing for bankruptcy in Wisconsin: Chapter 7 or Chapter 13?

There are pros and cons to filing for either Chapter 7 or Chapter 13 bankruptcy, which may impact which option is best for a person’s needs.

People throughout Wisconsin may be struggling with overwhelming debt for any number of reasons, including the state of the economy, the loss of a job or poor spending habits. For many, filing for bankruptcy is the best way for them to regain control of their finances. With several available options, however, it may be difficult for people to determine which choice best fits their needs. Therefore, it can be helpful to understand the pros and cons of declaring Chapter 7 versus Chapter 13 bankruptcy.

Advantages of Chapter 7 bankruptcy

Filing for Chapter 7 bankruptcy affords people a number of benefits. There is no minimum debt required for such filings, so people do not have to be drowning in debt to qualify. In addition, those who declare bankruptcy under Chapter 7 are able to keep the wages they earn and the property they acquire after filing. Once a filer's non-exempt assets have been distributed and liquidated, his or her remaining eligible balances are generally discharged.

Unlike other options, which may take longer, Chapter 7 bankruptcies are typically resolved within three to six months. As such, people are able to begin rebuilding their credit and financial stability much quicker.

Downsides to Chapter 7 bankruptcy

There are some disadvantages to filing for Chapter 7 bankruptcy. Since this type of filing requires people to liquidate certain assets, those who seek this type of protection may lose their non-exempt property. According to the U.S. Bankruptcy Court for the Eastern District of Wisconsin, Chapter 7 filings do not stop foreclosures or repossessions. Therefore, people may still lose their homes or vehicles after filing if they are behind on their payments.

Furthermore, declaring Chapter 7 bankruptcy also has a negative impact on filers' credit. This type of filing generally remains on people's credit reports for up to 10 years and may impact their future loan and credit opportunities.

Benefits of Chapter 13 bankruptcy

Like Chapter 7 filings, there are a number of advantages to declaring Chapter 13 bankruptcy. Through this type of filing, people establish a debt repayment plan, as opposed to liquidating their assets. As such, they are able to keep their exempt, as well as their non-exempt, property.

Additionally, Chapter 13 bankruptcy stops foreclosures and other collection efforts. According to the U.S. Courts, this may enable people to keep their homes if they can continue to make their regular monthly mortgage payments after filing.

Disadvantages of Chapter 13 bankruptcy

While it can provide much needed assistance, there are some downsides to filing Chapter 13 bankruptcy. People who seek this type of protection make their payments in accordance with their repayment plans from their disposable incomes. As such, much of their cash is tied up for the duration of their plans, which may last for between three and five years.

There are specified limits on the debts for people seeking Chapter 13 protection. Therefore, not everyone who requires debt relief may be eligible for this option. Currently, people cannot have secured debts in excess of $1,149,525 or unsecured debts of more than $383,175.

Obtain legal guidance

Deciding to file for bankruptcy in Wisconsin is a serious choice that may have lasting implications. For that reason, people considering declaring bankruptcy may find it of benefit to consult with a legal representative. Working with an attorney may help them to understand their options, as well as determine the best course of action for their circumstances.

Keywords: bankruptcy, debt, finance, legal guidance, attorney