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Chapter 7 or Chapter 13 bankruptcy: Which is best?

When it comes to filing personal bankruptcy, which is better: Chapter 7 or Chapter 13?

The type of bankruptcy you file will depend largely on your financial situation. For instance, are you facing foreclosure on your home or property, or are you just drowning in credit card debt and other bills? Their are advantages and disadvantages for both as explained below.

Wisconsin Chapter 7 bankruptcy

If you just need to get out from under a heavy burden of credit card debt, and you don't own many assets, Chapter 7 is probably your best option. You may still be able to keep your home and automobile if they are covered under "bankruptcy exemptions." You will need to ask your attorney about any assets you would like to retain.

Eligibility for filing Chapter 7 is determined by the Wisconsin Means Test. This test calculates your income and expenses. If your total disposable income, over the course of the next five years, is expected to be less than $12,475, you may qualify for Chapter 7.

The advantage to filing Chapter 7 is that most unsecured debt is completely discharged, allowing you a fresh start when the bankruptcy process is over.

Wisconsin Chapter 13 bankruptcy

If you are behind on mortgage payments, in a foreclosure process and want to keep your home, you will need to file Chapter 13. You must have a regular source of income. If you have too much income to file Chapter 7, you may still file Chapter 13.

With Chapter 13, you have an opportunity to catch up mortgage payments and keep your home. A three- to five-year repayment plan is proposed to your creditors to pay off part or all of the debt owed to them. The amount you repay is determined by your household disposable income, as determined in the Wisconsin Means Test.

The advantage to filing Chapter 13 is that you can keep all of your property or assets as long as you follow and stay current with the proposed payment plan. Some debts may be reduced or discharged at the end of the plan.

With either Chapter 7 or Chapter 13 bankruptcy, all debt collection, wage garnishment or other collection efforts are immediately halted. You can get back on track with timely payments and be able to start fresh when the bankruptcy plan is completed.

Source: Wisconsin Bankruptcy Law, "Wisconsin Chapter 7 Bankruptcy or Wisconsin Chapter 13 Bankruptcy?," accessed Dec. 29, 2017

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