Bankruptcy FAQs

A Chapter 7 bankruptcy case is a proceeding under Chapter 7 of the federal Bankruptcy Code. Chapter 7 bankruptcies are often called “straight bankruptcy” or “liquidation.” In theory, a person who files Chapter 7 bankruptcy will have his or her assets liquidated and paid over to their creditors, and any amount left owing to the creditors is permanently discharged. In practice, it is rare that any assets are liquidated because most assets are “exempt” from collection. Thus, most people who file Chapter 7 bankruptcy have all their debts permanently discharged without losing any of their property.

A Chapter 13 bankruptcy case is a proceeding under Chapter 13 of the federal Bankruptcy Code. In a Chapter 13 bankruptcy, a person repays some or all of his or her debts over a period of 3 to 5 years. Specifically, the person prepares a repayment plan which specifies how much the regular payments will be and who the money is paid to. If the Chapter 13 plan is approved, the person makes the payments to a Chapter 13 Trustee who collects the money and distributes it to the appropriate creditors.

Chapter 13 bankruptcy may allow someone to keep assets that may be subject to repossession or foreclosure, or which may otherwise be lost in a Chapter 7 bankruptcy. Additionally, Chapter 13 bankruptcy allows for the discharge of certain debts that are not allowed to be discharged in a Chapter 7 bankruptcy. On the other hand, a Chapter 13 bankruptcy will usually take at least 3 years to complete and will be significantly more costly than a Chapter 7 bankruptcy.

A Chapter 128 case is a voluntary proceeding brought under Wisconsin Statute § 128.21. Specifically, it IS NOT a bankruptcy filing. It is a court proceeding to amortize debts and repay them over a period of not more than three years. The repayment plan does require the debts be paid in full, but a Chapter 128 filing can stop garnishments, repossessions and the accrual of interest while the debt is being repaid, amongst many other benefits.

Wisconsin Chapter 128 does not provide the same types of protections as a Chapter 7 or Chapter 13 Bankruptcy. However, in the right circumstances Wisconsin Chapter 128 can provide superior relief without the cost and stigma of a bankruptcy filing.

A Discharge in a Chapter 7 bankruptcy is an order from the bankruptcy court releasing a debtor from his or her personal obligation to repay any dischargeable debts. The Discharge also orders the creditors not to take any actions to collect the discharged debts from the debtor. A debtor may choose to voluntarily repay a debt that was discharged, but the debtor has no legal obligation to do so.

Just like a Discharge in a Chapter 7 bankruptcy, a Chapter 13 Discharge is an order from the bankruptcy court releasing a debtor from his or her personal obligation to repay any dischargeable debts. The Discharge also orders the creditors not to take any actions to collect the discharged debts from the debtor. However, a Chapter 13 Discharge releases the debtor from additional debts that are not discharged in a Chapter 7, such as debts owed to a former spouse (other than child support and maintenance) resulting from a divorce settlement or court order.

There are a number of debts that may not be discharged in either a Chapter 7 or Chapter 13 bankruptcy. The most common examples include:

• Domestic support obligations, such as child support and maintenance.
• Most tax obligations. However, income tax debts that are three or more years old may be dischargeable.
• Student loans.
• Criminal fines, penalties and forfeitures owed to a governmental unit.
• Debts incurred by fraud, false pretenses or representation, embezzlement, larceny or for willful and malicious injuries.

Even if you owe a nondischargeable debt, you can still file for bankruptcy. There are a number of ways bankruptcy could help you reduce the amount you owe and make payments over a longer period of time.

Generally, any individual who resides in the United States is eligible to file a Chapter 7 bankruptcy. However, the individual must satisfy the “Means Test” in order to maintain their Chapter 7 bankruptcy (please review our FAQ on the Chapter 7 Means Test).

Additionally, there are circumstances where an individual may not be eligible for a Chapter 7 Discharge. Because the goal of a Chapter 7 bankruptcy is usually to secure a Discharge, an individual would not ordinarily file a Chapter 7 bankruptcy if they are not eligible for a Discharge. Some examples of when an individual would not be eligible for a Chapter 7 Discharge include:

• A Chapter 7 Discharge was granted in a bankruptcy case filed in the previous 8 years.
• A Chapter 13 Discharge was granted in a bankruptcy case filed in the previous 6 years, unless all or substantially all of the unsecured claims were paid in the previous Chapter 13 case.
• The individual concealed, transferred or destroyed property with the intent to defraud creditors or the trustee, or failed to satisfactorily explain the loss or deficiency of assets.
• The individual made false statements or claims in the Chapter 7 bankruptcy case, or withheld information from the trustee.
• The individual failed to complete a personal financial management course.

Even if you believe you may not be eligible for a Chapter 7 discharge, you should still meet with a bankruptcy attorney to discuss your options.

The means test is a method of determining whether an individual with primarily consumer debts has enough disposable income to pay a minimum amount of money to their unsecured creditors on a monthly basis. The method of determining an individual’s disposable income can be very complex. To begin with, if an individual’s current monthly income from all sources is less than the median income for their state and household size, that individual is exempt from further means testing and is eligible for a Chapter 7 bankruptcy. If the individual’s current monthly income exceeds the applicable median income, that income is reduced by certain allowed expenses and debt payments to arrive at a monthly disposable income. If this disposable income in insufficient to pay unsecured creditors, the individual is still eligible to for a Chapter 7 bankruptcy. However, if the means test reveals that the individual can make a minimum monthly payment to unsecured creditors (currently $124.58/month), the case must either be dismissed or converted to Chapter 13 case.