Most people in Wisconsin are familiar with the concept of bankruptcy. Far fewer fully understand what happens during a bankruptcy and the differences between to two primary types of bankruptcy filings, a Chapter 7 and a Chapter13.
Many are fearful of filing, as they worry they could “lose everything.” This does not happen because the trustee in a Chapter 7 is only interested in collecting nonexempt assets that can be sold. The Trustee’s job is to collect any nonexempt assets, sell them and distribute the proceeds to the creditors.
The vast majority of Chapter 7 filings are classified by the trustee as “no asset.” Debtors who have assets they need to protect will often file a Chapter 13. This means most individuals who file a Chapter 7 have few nonexempt assets and what they have would have little resale value the trustee.
Exempt property is defined by the bankruptcy exemptions. There are two kinds, federal and state. Wisconsin allows you to choose between the federal bankruptcy exemptions or the Wisconsin exemptions. You cannot mix and match, so you should discuss with your bankruptcy attorney which set of exemptions are most valuable to your specific financial situation.
For instance, Wisconsin allows $12,000 for household goods, such as clothing, appliances, firearms, keepsakes and jewelry. The federal exemption is $8,000, with a separate $1,000 for jewelry in 2016. If you have an expensive wedding ring, the state exemptions might be best, assuming you don’t have some other asset that is better protected by the federal exemptions.
If you rent and have a limited amount of personal property, and either don’t own a car or only have limited equity in the vehicle, your filing would likely be classified as a no-asset case.
As part of the filing process, your attorney will go over your assets and help you determine which set of exemptions is most favorable.
Source: csmonitor.com, “Five bankruptcy myths dispelled,” Sean Byles, NerdWallet, June 13, 2016