Key Differences Between Chapter 7 and Chapter 13 Bankruptcy in Wisconsin
When individuals face overwhelming debt, filing for bankruptcy can provide a pathway towards financial relief. In Wisconsin, two of the most common types of bankruptcy filings are Chapter 7 and Chapter 13. Understanding the key differences between these two options is crucial for anyone considering bankruptcy as a viable solution.
1. Basic Structure of Chapter 7 and Chapter 13
Chapter 7 bankruptcy, also known as "liquidation bankruptcy," allows individuals to discharge most of their unsecured debts, such as credit card bills and medical expenses. This means that debtors can eliminate these debts without needing to repay them. In contrast, Chapter 13 bankruptcy is a "reorganization bankruptcy," where individuals develop a repayment plan to pay back a portion of their debts over three to five years. During this time, creditors must adhere to the repayment plan laid out in court.
2. Eligibility Requirements
Eligibility for Chapter 7 bankruptcy in Wisconsin is determined by a "means test," which assesses the individual's income, expenses, and family size. If a person's income is below the state median income level, they typically qualify for Chapter 7. Conversely, Chapter 13 has its eligibility criteria based on the total amount of secured and unsecured debts. Individuals with too much debt may not qualify for Chapter 13, as the limits are set at $419,275 for unsecured debts and $1,257,850 for secured debts (these figures are subject to change, so it's advisable to verify the current limits).
3. Impact on Assets
One of the most significant differences lies in how assets are treated. In Chapter 7, non-exempt assets may be sold to repay creditors. Wisconsin allows certain exemptions that protect specific types of property, such as a primary residence and personal property, making it crucial for individuals to understand what assets are protected. On the other hand, Chapter 13 bankruptcy allows individuals to keep their assets while repaying debts over time. This makes Chapter 13 an appealing option for those wanting to protect their home or other significant assets.
4. Duration of the Process
The duration of the bankruptcy process differs between Chapter 7 and Chapter 13. Chapter 7 can typically be completed within four to six months after filing, providing a quicker resolution for debtors. In contrast, Chapter 13 requires a longer commitment, as the repayment plan lasts between three to five years, during which the debtor must make regular payments to the bankruptcy trustee.
5. Credit Impact
Both Chapter 7 and Chapter 13 bankruptcy will impact an individual's credit score, but the duration and severity can differ. Chapter 7 bankruptcy remains on a credit report for ten years from the filing date, while Chapter 13 remains for seven years. However, Chapter 13 may have a less damaging effect on credit scores in the long run, as individuals are actively making payments towards their debts, which can demonstrate a willingness to repay and improve creditworthiness over time.
6. Future Borrowing Potential
Post-bankruptcy, individuals may face challenges in obtaining credit. However, since Chapter 13 involves repayment, it may make it easier for individuals to secure loans in the future once they've successfully completed their repayment plan. In contrast, individuals who file for Chapter 7 may find it more difficult to obtain credit immediately after the discharge, albeit options may become available after some time.
In conclusion, choosing between Chapter 7 and Chapter 13 bankruptcy in Wisconsin involves careful consideration of financial circumstances, asset protection, and long-term goals. Consulting with a qualified bankruptcy attorney can provide personalized guidance, ensuring that individuals choose the best path for their specific situation.