How to Choose Between Chapter 7 and Chapter 13 in Wisconsin Bankruptcy
When facing overwhelming debt, individuals in Wisconsin often turn to bankruptcy as a solution. The two most common types of bankruptcy for individuals are Chapter 7 and Chapter 13. Choosing the right type depends on various factors, including income, debt levels, and financial goals. Understanding the differences between Chapter 7 and Chapter 13 can help you make an informed decision.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to eliminate most of their unsecured debts. This includes credit card debts, medical bills, and personal loans. In Wisconsin, qualifying for Chapter 7 involves passing a means test, which compares your income to the median income for your household size.
If your income is below the median, you may easily qualify for Chapter 7. However, if your income exceeds the median, you may still qualify based on allowable deductions. Importantly, assets considered non-exempt may be sold to pay off creditors, but many people find that they can keep their assets due to Wisconsin’s bankruptcy exemptions.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, known as "reorganization bankruptcy," allows individuals to keep their assets while establishing a repayment plan to settle debts over three to five years. This option is ideal for those with a regular income who can afford to make monthly payments, as it helps prevent foreclosure on homes and repossession of cars.
In order to qualify for Chapter 13, you must have a regular source of income and your unsecured debts must be less than $465,275, while secured debts must be less than $1,395,875 (these limits may change periodically). Chapter 13 allows to catch up on missed payments and can also provide a potential reduction in the total debt owed.
Key Differences Between Chapter 7 and Chapter 13
1. **Debt Elimination vs. Repayment:**
Chapter 7 focuses on eliminating unsecured debts, while Chapter 13 involves creating a manageable repayment plan for debts.
2. **Impact on Assets:**
In Chapter 7, certain non-exempt assets may be sold, while Chapter 13 allows individuals to keep their assets as long as they comply with the repayment plan.
3. **Eligibility Requirements:**
Chapter 7 requires passing a means test, while Chapter 13 requires a steady income and adheres to debt limits.
4. **Duration:**
Chapter 7 bankruptcy typically takes 3 to 6 months to complete, whereas Chapter 13 repayment plans span 3 to 5 years.
Factors to Consider When Choosing
When deciding between Chapter 7 and Chapter 13 bankruptcy, consider the following:
- Your Income: If your income is low enough to pass the means test, Chapter 7 is an option. If you have a reliable income source, consider Chapter 13.
- Types of Debt: Evaluate if most of your debts are unsecured. For significant secured debts, Chapter 13 may be more appropriate.
- Asset Protection: If you want to keep your home or car, Chapter 13 may be a better choice.
- Future Financial Goals: Consider how each option aligns with your long-term financial plans.
Consult a Bankruptcy Attorney
Choosing between Chapter 7 and Chapter 13 can be complex, and it is often beneficial to consult a bankruptcy attorney. An experienced attorney can provide personalized advice based on your financial situation and help you navigate the bankruptcy process.
In conclusion, understanding the differences between Chapter 7 and Chapter 13 bankruptcy is crucial for making an informed decision in Wisconsin. Assess your financial situation, consider your goals, and consult a professional to choose the best path for your financial recovery.