Bankruptcy 2005 (Law in effect until October 17, 2005)
Bankruptcy is a legal way to get out of paying certain debts. Those debts are eliminated by a bankruptcy court “discharging” them. A discharge of a debt in bankruptcy means that whomever you owe the debt to can no longer legally require you to pay it. The purpose of bankruptcy is so society can allow people to have a fresh start when they become heavily burdened by debt.
There are several types of bankruptcy. Bankruptcy is all a matter of Federal Law and is done in the federal courts according to laws passed by Congress. The most common form of bankruptcy is known as Chapter 7 bankruptcy. This is the form of bankruptcy which most people use. In Chapter 7, the bankruptcy court discharges your debts while it also takes certain property that you have, sells it and distributes the money among your creditors. Chapter 13 bankruptcy allows people to keep their property and the bankruptcy court supervises their paying off some parts of their debts during a 3-5 year period. Chapter 11 bankruptcy is essentially for a business. It lets the business operate while the court supervises payment of some parts of the business debts. Chapter 12 bankruptcy is for farmers.
There are also some debts which cannot be discharged in bankruptcy. Non-dischargeable debts include: child and spousal support debts; court judgments against you or settlements entered into by you for personal injuries or death due to driving while intoxicated; student loans which became due less than 7 years ago; taxes which became due less than 3 years ago; restitution ordered by a court; condominium dues or dues from a cooperative; debts which were incurred through fraud; and punitive damages from willful harm to another person.
A debtor is allowed to keep certain property in a bankruptcy. This property is known as “exempt property.” The exemptions are for certain assets listed in the law, but only up to a maximum value. In Wisconsin, you are allowed to have $1200 in a motor vehicle, $40,000 in homestead equity in your house, $5,000 in household goods and personal effects, life insurance, pensions, tools of one’s trade, and government assistance in the form of social security payments, unemployment compensation , etc. which you have saved in a bank account.
Immediately upon filing of a bankruptcy and notification of creditors, an “automatic stay” of all creditors’ actions against you goes into effect. This means that all collection actions, lawsuits, foreclosures, evictions, etc. are immediately halted by order of the Bankruptcy Court. The court then schedules the meeting with creditors and you must attend this meeting (in this area of Wisconsin the meeting is held in Eau Claire). At the meeting, creditors present their claims and the court deals with property which is non-exempt.
You can file for Chapter 7 bankruptcy again 6 years after the date of your discharge in bankruptcy. Since you can get a discharge once every 6 years, it is very important that you not do it frivolously or for just a few minor debts.
Recently, Congress has been considering the first major revision in 20 years to the Bankruptcy Code. The changes would include a “means” test, so that if a debtor had a certain income, a portion of the debts would have to be repaid before a discharge would be allowed. The Senate and the House are working to consolidate their separate bills and it is likely that the new Bankruptcy Law will go into effect in the next year.