People talk about “filing for bankruptcy” as if it’s one thing. It isn’t. The two most common forms — Chapter 7 and Chapter 13 — work very differently, and the wrong choice for your situation can have serious consequences.
Chapter 7: The Fresh Start
Chapter 7 is a liquidation bankruptcy. A trustee is appointed to review your assets, discharge most of your unsecured debt (credit cards, medical bills, personal loans), and give you a fresh start — typically within 4 to 6 months. You don’t make a repayment plan. You don’t pay creditors back over time. Qualifying dischargeable debt is simply eliminated.
The catch: you must pass a means test based on your income. If you earn too much compared to Wisconsin’s median income for your household size, you may not qualify for Chapter 7. You’ll also need to surrender non-exempt assets — though Wisconsin’s exemptions protect a meaningful amount of home equity, retirement funds, a vehicle, and household goods.
Chapter 13: The Reorganization
Chapter 13 is a reorganization. You propose a 3-to-5-year repayment plan, approved by the court, that pays back some or all of your debt based on your disposable income. At the end of the plan, remaining eligible debt is discharged.
The advantage: Chapter 13 lets you keep assets you’d lose in Chapter 7, catch up on mortgage arrears to save your home from foreclosure, and address debts that Chapter 7 can’t discharge (like certain tax debts). It’s more complex and requires sustained commitment, but it’s often the only path for people with significant assets or income above the Chapter 7 threshold.
Which Is Right for You?
The answer depends on your income, assets, the types of debt you have, and what you’re trying to protect. Someone trying to save a home from foreclosure usually needs Chapter 13. Someone with mostly credit card debt and no significant assets is often better served by Chapter 7. There’s no universal answer.
Attorney Christopher Carson helps clients in the Milwaukee and Waukesha County area evaluate both options and choose the path that actually solves their problem. Call (262) 860-8932 for a confidential consultation.
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