Key Differences Between Wisconsin's Chapter 7 and Chapter 13 Bankruptcy Options

When individuals face financial difficulties, two common bankruptcy options in Wisconsin are Chapter 7 and Chapter 13 bankruptcy. Understanding the key differences between these two types of bankruptcy can help individuals make informed decisions based on their unique financial situations.

Eligibility Requirements

One of the primary differences between Chapter 7 and Chapter 13 bankruptcy is the eligibility criteria. Chapter 7 bankruptcy is available to individuals whose income falls below the state median or who meet the means test, which evaluates income against allowable expenses. On the other hand, Chapter 13 bankruptcy is generally suited for individuals with a regular income, as it requires them to have a stable source of income to create a repayment plan.

Process Duration

The duration of the bankruptcy process varies significantly between the two chapters. Chapter 7 bankruptcy is usually quicker, often taking just a few months to complete. In contrast, Chapter 13 bankruptcy involves a repayment plan that usually lasts three to five years, depending on the debtor's income and amount owed.

Asset Liquidation

Another important distinction lies in asset liquidation. In Chapter 7, a bankruptcy trustee is appointed to liquidate non-exempt assets to repay creditors. However, many assets can be exempt under Wisconsin law, allowing individuals to retain significant property, such as their homes and vehicles. Conversely, Chapter 13 bankruptcy allows debtors to keep all their assets, as they are repaid over time through the repayment plan.

Debt Discharge

The types of debts discharged also differ. Chapter 7 typically discharges unsecured debts like credit card debt and medical bills, providing a fresh financial start. However, certain obligations, such as student loans, child support, and taxes, generally cannot be discharged. In Chapter 13, while it also discharges unsecured debts, it allows debtors to potentially keep their homes and catch up on mortgage payments, making it a viable option for those facing foreclosure.

Impact on Credit

Both Chapter 7 and Chapter 13 bankruptcy will affect an individual's credit score, but the duration and severity of the impact differ. Chapter 7 remains on a credit report for up to ten years, while Chapter 13 remains for seven years. However, individuals filing for Chapter 13 may demonstrate a proactive approach to managing their debt, which can be beneficial in certain lending scenarios down the line.

Choosing the Right Option

Deciding between Chapter 7 and Chapter 13 bankruptcy requires careful consideration of individual financial circumstances. Individuals should assess their income, debts, asset situation, and long-term financial goals. Consulting with a qualified bankruptcy attorney in Wisconsin can provide valuable insights tailored to one's specific situation.

In conclusion, understanding the key differences between Wisconsin's Chapter 7 and Chapter 13 bankruptcy options can empower individuals to make informed decisions regarding their financial futures. Both paths offer potential solutions to alleviate overwhelming debt, but the right choice depends on various personal factors.