Navigating the Bankruptcy System: What Wisconsin Debtors Need to Understand

Navigating the bankruptcy system can be a daunting task for many debtors in Wisconsin. Understanding the process, the types of bankruptcy available, and the potential consequences is vital for making informed decisions. Below, we explore key aspects of the bankruptcy system in Wisconsin that every debtor should be aware of.

Types of Bankruptcy Available in Wisconsin

In Wisconsin, individuals typically file for two types of bankruptcy under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code:

Chapter 7 Bankruptcy: This is often referred to as “liquidation” bankruptcy. It allows debtors to wipe out most of their unsecured debts, such as credit card bills and medical expenses. However, debtors may need to surrender non-exempt assets, though Wisconsin exemptions often protect many personal belongings.
Chapter 13 Bankruptcy: This type is known as “reorganization” bankruptcy and is suitable for individuals with a regular income. It allows debtors to create a repayment plan to repay all or part of their debts over three to five years, helping them keep their assets while managing debt repayment.

Eligibility Requirements

Before filing for bankruptcy in Wisconsin, debtors must determine their eligibility:

For Chapter 7, debtors must pass the means test, which compares their income to the state's median income for their household size.
For Chapter 13, debtors need to have a regular income and their secured and unsecured debts must not exceed specific limits set by the federal government.

The Bankruptcy Filing Process

The bankruptcy process involves several steps:

Credit Counseling: Debtors must complete credit counseling from an approved agency within 180 days before filing for bankruptcy.
Filing the Petition: Debtors must prepare and file a petition that includes detailed information about their debts, income, expenses, and assets. This process can be complex, so seeking legal assistance is often advisable.
Automatic Stay: Once the petition is filed, an automatic stay goes into effect, which stops most creditors from pursuing collection actions.
341 Meeting of Creditors: Debtors will attend a meeting where creditors can question them about their financial situation. This meeting is usually held about a month after the filing.
Discharge of Debts: If the bankruptcy is successful, most debts will be discharged, providing the debtor with a fresh financial start.

Impact on Credit Score

Filing for bankruptcy will significantly impact a debtor’s credit score. A Chapter 7 bankruptcy can remain on a credit report for up to 10 years, while Chapter 13 can last for seven years. However, many debtors find that they can start rebuilding their credit sooner than expected after bankruptcy.

Considerations After Bankruptcy

Post-bankruptcy, it’s essential for debtors in Wisconsin to focus on financial literacy and planning:

Budgeting: Creating a budget can help manage finances effectively, avoiding the mistakes that led to bankruptcy in the first place.
Building Credit: Debtors can start rebuilding their credit by securing a credit card with a low limit and paying it off regularly.
Financial Education: Learning about personal finance can empower debtors to make better financial decisions in the future.

Conclusion

Navigating the bankruptcy system in Wisconsin requires a thorough understanding of the types of bankruptcy, eligibility requirements, and the filing process. By being informed and seeking proper guidance, debtors can make empowered decisions and work towards a more secure financial future.