A Primer on Wisconsin Bankruptcy Exemptions

How can I protect my property if I file for Chapter 7 bankruptcy?

Even though the number of bankruptcy filings in the state of Wisconsin has fallen to pre-recession levels, many individuals still may be faced with insurmountable debt burdens, in which case filing for bankruptcy may be the only option.

Eligibility for Bankruptcy

An individual whose income is less than the median for a household of a similar size is generally eligible for Chapter 7. If the debtor’s income is above the median, Chapter 7 may still be available provided that a means test of expenses and payments shows that the individual’s income is insufficient to meet those needs. Prior to filing for bankruptcy, it is necessary for an individual to receive credit counseling, within 6 months before filing, from an agency approved by the U.S. Trustee in the state.  It is also necessary to take a debtor education course after filing before a discharge will be granted.

Wisconsin Bankruptcy Exemptions

While filing Chapter 7 bankruptcy is a difficult endeavor, it does not necessarily mean that a debtor will be forced to sell all of his or her property. In fact, certain property is protected, or exempt, from being sold to pay off debts. In Wisconsin, a debtor who is filing a bankruptcy petition has the ability to choose between Federal and  state exemptions.

Some of the exemptions available in Wisconsin include:

  • Residential Property – up to $75,000  in a residential dwelling, $150,000 for married couples filing jointly
  • Motor Vehicles ­- up to $4,000 in motor vehicles
  • Wages – 75% of net weekly income
  • Personal Property – up to $12,000 in the total value of household goods and furnishings, clothing, jewelry, appliances, books, firearms, sporting goods and other tangible personal property

Other exemptions include savings accounts up to $1,000, personal injury (up to $50,000) and wrongful death settlements, insurance benefits (including Federal disability benefits, fire and accident insurance proceeds, un-matured life insurance policies and annuities, and life insurance payments). In addition, pensions are exempt for certain municipal employees, firefighters and police officers, military personnel, and other public employees.

Moreover, public benefits such as social security, unemployment compensation and Veteran’s war pension benefits are also exempt. Finally, Wisconsin bankruptcy also exempts certain other property. Understanding these exemptions and navigating a bankruptcy petition, however, require the skills of an experienced bankruptcy attorney.

Small Business Bankruptcy: To file or not to file

Under what conditions should a small business file for bankruptcy?

Small businesses are essential for economic growth in Wisconsin, but some business owners may find themselves with debts that are unmanageable. While no entrepreneur launches a venture with failure in mind, being unable to pay off creditors can jeopardize the business as well as the owner’s personal assets. If the situation becomes untenable, the only way out may be to file for bankruptcy.

Small Business Bankruptcy

Bankruptcy does not necessarily mean financial ruin, and a business has options that can enable it to continue operating while reorganizing its debts, depending on the circumstances. Filing for bankruptcy also protects the business from liquidation proceedings by creditors while giving it time to reduce and delay debt payments as it regains its footing.

There are three types of bankruptcy protection, Chapter 7, Chapter 11 and Chapter 13. Each form of bankruptcy grants the business a “temporary stay” which stops all collection activities and gives the business time to put a plan in place. A sole proprietor may file under any of these forms of bankruptcy while corporations and partnerships can only file under Chapter 7 and Chapter 11.

In a Chapter 7 bankruptcy, the business is closed and the assets are liquidated to pay off the debts. If the business is a sole proprietorship, the owner must file a personal bankruptcy for both personal and business assets. On the other hand, a Chapter 11 filing allows the business to come up with a creditor-approved plan to reorganize its debts while retaining its assets and continuing to operate. Finally, a Chapter 13 bankruptcy is utilized by an individual to personally pay off business and personal debt with proceeds from future income over a 3 to 5 year period.

Reasons to File a Small Business Bankruptcy

A business owner may need to file Chapter 7 bankruptcy if credit problems cannot be resolved. This might be the best route to take when the relief of the debt burden outweighs the downside of losing the business and the long-lasting damage to the owner’s credit history. On the other hand, a Chapter 11 bankruptcy is designed for a business that is still viable, but needs to reorganize its debts in order to return to profitability. Regardless of the circumstances facing your small business, an attorney with expertise in bankruptcy law can help you explore your options.