Bankruptcy FAQ

What is bankruptcy?

The right to file bankruptcy arises under Title 11 of the United States Bankruptcy Code. Bankruptcy imposes a stay that provides protection from creditors and allows individuals and organizations to eliminate or re-pay (consolidate) debts they owe.

If creditors are to be paid, bankruptcy provides an orderly process through which they can receive payment. Bankruptcies are normally filed under Chapter 7, Chapter 13, Chapter 12, and Chapter 11.

Chapter 7

A bankruptcy filed under Chapter 7 clears out (or "discharges") your debt quickly. A petition is filed and your debts are discharged within a few months. Both individuals and corporations can file Chapter 7.

There is no long-term monthly payment plan. In some cases, Chapter 7 involves liquidation - that is, non-exempt assets are liquidated and used to pay creditors. If you cannot afford to pay your bills, Chapter 7 is a great way to get a new financial fresh start.

Chapter 13

Chapter 13 is for individuals only (corporations cannot file Chapter 13). Under Chapter 13 the court requires the bankruptcy filer (the debtor) to submit a debt repayment plan and to pay the debt (or a portion of the debt) over a period of three to five years.

Chapter 13 typically forces a creditor into a payment plan that has the effect of lowering the amount the debtor must pay out each month and it provides re-payment terms that are more convenient for the debtor.

Chapter 11 & Chapter 12

Chapter 11 is a consolidation for corporations. In rare cases, individuals can file Chapter 11 if the amount of debt they have exceeds the Chapter 13 debt limits set forth under 11 U.S.C. § 109. Chapter 12 is for family farmers.

What things should I avoid before filing bankruptcy?

There are numerous mistakes that I see people make before bankruptcy. Bankruptcy is complicated and is filled with numerous traps and pitfalls. If you are beginning to encounter financial difficulties, it is never too early to consult with a bankruptcy attorney. By meeting with an experienced Milwaukee bankruptcy attorney early enough, you can ensure you won't make some of the many mistakes that can complicate your bankruptcy case.

Who can file bankruptcy?

Bankruptcy can be filed by a corporation or an individual. Married couples don't have to file together. In some cases it is advisable for one spouse to file and not the other. If you and your spouse are not getting along or if you are not sure whether you want to file with your spouse, it is recommended that you call an attorney to schedule your first meeting without your spouse being present. During the meeting, I can help you decide whether you should include your spouse in your bankruptcy filing or not.

Can I file bankruptcy if I have already filed bankruptcy in the past?

If you have filed bankruptcy in the past, you may need to wait before you are eligible to file again. How long you must wait will depend on what chapter your prior case was filed under and what chapter you are seeking to file your second case under.

What are the debt limits for filing bankruptcy?

Remember, those with high debt levels may not be eligible to file Chapter 13 bankruptcy. In these rare cases, they may be eligible under Chapter 11. According to 11 U.S.C. § 109, if your total unsecured debts are not less than $360,475.00 or if your total secured debts are not less than $1,081,400.00, you are not eligible to file under Chapter 13. These amounts are increased every few years. The debt amount restrictions do not apply to those who file Chapter 7.

Can I file Chapter 7 if my income is higher than the state median?

Filing a Chapter 7 won't be easy if your income is above the median income in your state. As of May 2015, the median income for an individual in Wisconsin is $43,666 and for a household of two it is $59,740. For a household of three people it is $69,600.

If your income is above the median, you are required to first complete and file the means test. This means test form is very complicated and you will need to hire an attorney who specializes in bankruptcy to help you complete the form and determine whether you qualify for Chapter 7. Those with high incomes who cannot file Chapter 7 are often still eligible under Chapter 13, so long as their debts don't exceed the Chapter 13 debt limits.

Will I lose my assets if I file bankruptcy?

In some cases you can stand to lose assets when you file bankruptcy. That is why Sapinski Law Office, S.C. will review all of your assets with you before filing your case. If you accurately communicate what you have before you file, everything should be protected.

Almost all my clients who file bankruptcy keep 100 percent of their property. I am able to protect their property in a variety of ways. Through careful use of "exemptions" you can protect your assets.

Exemptions are values or dollar amounts which apply to homes, cars, personal property, retirement accounts, depository accounts, cash, and other types of property. The exemption declares an amount up to which that particular type of property is protected. Through careful and diligent use of these exemptions, Sapinski Law Office, S.C. routinely protects the property of bankruptcy clients.

What Are My Bankruptcy Protected Assets?

While you can keep your exempt property, non-exempt property can be seized by a Chapter 7 bankruptcy trustee, liquidated, and used to pay your creditors. Many who find they have un-exempt assets can still keep them if they file Chapter 13. Each state has its own set of laws regarding the use of exemptions.

Other assets that may be shielded from liquidation include:

• Pensions
• Security disability benefits
• Personal injury awards

What Are Federal Bankruptcy Exemptions?

Some states allow you to use the federal exemptions. Wisconsin is one such state.

Under the federal exemptions you cannot protect as much equity in a home; however, a "wildcard exemption" of up to $25,450 for married couples may be available. Always consult with an experienced lawyer who can help you determine whether the Wisconsin scheme or federal scheme is best for you.

It is also important to keep in mind that timing your bankruptcy filing can be very important. In fact, timing can mean everything, and a knowledgeable bankruptcy lawyer will tell you when it is best for you to file. Sometimes you first need to make non-exempt assets exempt through a process lawyers call "exemption planning."

Improper exemption planning can result in allegations of fraud; therefore, it is critical that you retain an experienced bankruptcy attorney before you begin any exemption planning. Remember, it is a federal crime to not disclose all your assets when you file bankruptcy.

Failure to list assets can result in denial of your bankruptcy discharge, loss of exemptions, and criminal prosecution. Federal law also requires you to disclose all inheritances, property settlements, or life insurance benefits received within 180 days after filing for bankruptcy. Such money will likely need to be paid to your creditors if it cannot be declared exempt.

Will I be required to go to court if I file bankruptcy?

You won't have to appear in front of a judge, especially if the attorney does his or her job. You will, however, be required to attend a 341 meeting and meet with a bankruptcy trustee. These meetings are usually held at a courthouse near you.

If you hire Sapinski Law Office, S.C., my team will fully prepare you for this meeting and will make sure all the required documents are submitted. With this ground work, you will find the meeting to be quite painless.

Most of the time, the 341 meeting is a short and simple procedure. You will be asked, under oath, about your bankruptcy forms and financial situation. In most cases, creditors do not bother to even show up for the meeting!

On occasion, complications can arise or a creditor may choose to dispute a debt. In these situations you may need to appear before a judge at a hearing. If you need to go to court, you will receive a notice from the court and from your attorney.

If I file for bankruptcy, will I lose my home?

It is possible to lose your home after filing for bankruptcy; however, it will largely depend on the chapter you file, your loan status, and the exemptions you choose. Those who file for Chapter 13 bankruptcy will not lose their home if they stay current on their payments.

In Chapter 7 bankruptcy, chances of losing your home are higher. Since the court-appointed trustee has control over your assets, he may decide to liquidate non-exempt homestead property to pay back creditors. If your home has no equity or a homestead exemption covers all the equity in your home, then the trustee will most likely not choose to sell your home.

It is recommended that you speak with a bankruptcy attorney who can evaluate your options, if you want to keep your home.

How often can you file bankruptcy in Wisconsin?

Chapter 7

If you already filed Chapter 7 bankruptcy and received a discharge, you will need to wait 8 years before filing for the second time. The 8 year time period begins from the filing date of your previous case.

If you already filed Chapter 13 bankruptcy, received a discharge, and are now looking to file a Chapter 7, you normally will need to wait 6 years from the filing date of your Chapter 13 case. This 6 year rule won't apply if your Chapter 13 plan paid at least 70% to your unsecured creditors in the prior case.

Chapter 13

If you already filed Chapter 13 bankruptcy and received a discharge and want to file a second time, you are required to wait 2 years from the date when you originally filed Chapter 13.

If you already filed Chapter 7 bankruptcy and received a discharge and want to file for Chapter 13 you can re-file under Chapter 13 at any time. However, you will only get a discharge in the Chapter 13 case if it is filed at least 4 years after the date your previous Chapter 7 case was filed.

What else do I need to know about bankruptcy?

How long will it take to rebuild my credit?

You may be able to reach a good credit score in as little as a few months. You may not be able to apply for a credit card right away, but you may be able to use secured credit cards, secured loans, and retail cards to build back your credit. Those who follow my free credit restoration program find they have their best credit ever within a few months after completing their bankruptcy.