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Comparing Chapter 7 and Chapter 13 bankruptcy

If you are considering filing for bankruptcy, you may be wondering about your options. In Wisconsin, Chapter 7 and Chapter 13 filings may each provide a solution.

These two approaches each have key distinguishing factors. What will work best for you depends on your particular circumstances and goals.

Chapter 7 outline

A Chapter 7 bankruptcy generally means the trustee inventories your non-exempt property, sells it and pays your creditors with the proceeds. Whatever debt cannot be covered by this sale goes away, with several exceptions. You usually cannot get rid of debt from student loans, taxes, child support or court judgments. For secured debt, you can give back the asset or bring your payments current and reaffirm your debt if you want to keep it.

After a Chapter 7 filing, your wages do not go into the bankruptcy estate, so you keep them. There is also no minimum debt you must have to qualify. However, there is a maximum income requirement beyond which the court may convert your Chapter 7 filing to a Chapter 13. Your case usually takes no more than six months.

Chapter 13 outline

In a Chapter 13 proceeding, the trustees come up with a payment plan to repay your debts. You do not have to give up any of your property. While you may not get a complete discharge of your debt, your payment plan can include a negotiation to reduce the amount you owe. Your payment plan can also address non-dischargeable debt, such as taxes. Most repayment plans take between three and five years.

To qualify for a Chapter 13, you will need to show you have enough disposable income to make payments according to a reasonable plan. Disposable income is what is left after you pay for necessities such as shelter, food, transportation and other basic living needs.

Making a decision

Discussing your situation with a lawyer can help you figure out which type of filing would be more effective for your needs. You may also choose to try other options for dealing with your debt before filing for bankruptcy.

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