Bankruptcy is a complicated federal court procedure that allows individuals to get a financial "fresh start." The process is complicated even more by the fact that many states each have their own bankruptcy regulations.
While bankruptcy is an option available to all US citizens, it may not be your best alternative. Only an attorney with years of experience in navigating the United States Bankruptcy Code, the Federal Rules of Bankruptcy Procedures and the Wisconsin Creditors' Actions Statutes can ensure that bankruptcy is truly in your best interest and that you receive every protection the bankruptcy law offers.
There are numerous different types, or chapters, of bankruptcy. The two most common are Chapter 7 (debt discharge) and Chapter 13 (debt reorganization).
Chapter 7 may be an option when your debts exceeds the value of your assets. Some of these assets, such as a home, may be considered "exempt" assets which the owner is allowed to keep during a bankruptcy. A Chapter 7 bankruptcy is also called a liquidation because your "non-exempt" assets are sold and the proceeds are used to pay creditors. In most cases the creditors receive only a portion of what is owed and the remainder of the debt is discharged.
Conversely, while the person filing for Chapter 7 may be able to keep exempt assets, not all debts will be discharged. For example, child support and many student loans cannot be discharged through bankruptcy.
A Chapter 7 bankruptcy typically takes three to five months to complete.
Chapter 13 allows individuals with a steady income to reorganize their debts under a court-approved plan allowing them to "catch up" with their debts. It will halt foreclosures and collection actions and can reduce the amount owed on some debts. In some cases you may even be able to reduce the interest rate on certain loans.
A Chapter 13 bankruptcy can be thought of as a consolidation loan. During the period of the bankruptcy, you pay a fixed monthly amount to a bankruptcy trustee who, in turn, distributes your funds to your creditors based upon the court-approved plan. During this period your creditors can have no direct contact with you.
While there is no set time limit, a Chapter 13 bankruptcy can give you up to five years to pay off short-term debts and become current on longer-term debts. In addition, a Chapter 13 bankruptcy may not as negatively affect your credit history and FICO score as a Chapter 7 bankruptcy.
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