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How trustees operate in Wisconsin's bankruptcy alternative

A long time ago Wisconsin legislators wanted to offer those in need a way out of debt through a recourse other than bankruptcy. Chapter 128, a little known provision, offers much of the same protection as a bankruptcy proceeding, but does not carry the same stigma. The process includes the appointment of a trustee who oversees the disposal of assets and the discharge of debts.

The trustee is typically nominated by a debtor's attorney to act as a neutral third-party caretaker. The trustee manages the debtor's funds and ensures payments to creditors. A trustee does not have to be an attorney. If a judge does not approve the nomination, other trustees are available through the Wisconsin court system.

Trustee fees are paid by the debtor as a percentage of the debtor's total debt load - from 7 percent to 10 percent of the total debt. Both the trustees and attorney fees are rolled into the debtor's monthly payments. The amount is decided by the trustee, depending on the amount of debt.

On appointment, a trustee notifies all listed creditors and submits a repayment plan to the court. Creditor objections or agreements are also presented. For disputed claims, the trustee submits a recommendation and the court approves or denies the recommendation.

If a court approves a debt relief plan, the trustee supervises its execution. Creditors are paid on a pro-rata basis, and if a debtor fails to make a payment for more than 30 days the trustee may ask the court to have the case dismissed. Conversely, if a creditor violates a court's stay order, the trustee can contact that creditor and initiate appropriate legal action.

In this way, trustees simultaneously serve the interests of both creditors and debtors. For that reason, they must be available to both parties when requested.

Source: WisBar.org, "Chapter 128: Wisconsin's Bankruptcy Alternative," Accessed on April 17, 2015

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