Chapter 7

This page contains general information. Contact a WBG attorney for specific advice.

Congress divided the bankruptcy law into separate chapters. Chapter 7 contains one type of bankruptcy. The title of Chapter 7 is “liquidation.” But, as we shall see, most individuals who file Chapter 7 keep all of their possessions.

Two things happen in most Chapter 7 cases. First, the debtor seeks a discharge of debts. Corporations and other entities can file Chapter 7 cases but cannot receive a Chapter 7 discharge. Note that, with rare exceptions, a creditor with a mortgage, security interest, or other lien can recover its collateral if the debtor doesn’t continue to pay the discharged debt.

The other thing happening in a Chapter 7 is that an appointed trustee seeks to gather funds to make a payment to creditors. Debtors can claim certain property as exempt from the trustee. As a result, the trustee makes no payment in the vast majority of cases.

Eligibility

Individuals can qualify to file a Chapter 7 by having (1) predominately non-consumer debts, (2) below median income, OR (3) sufficient allowed living expenses (using a formula developed by your friends in Congress). The second and third gateways to Chapter 7 make up the “means test” of which you may have heard.

Entities, such as corporations, can file Chapter 7 without qualification. But remember, they cannot receive a Chapter 7 discharge.

Preparation

Debtors can – and sometimes do – file bankruptcies quite quickly. However, planning ahead gives you and your attorney time to:

Prepare bankruptcy documents. As part of a bankruptcy you must give a complete disclosure of your financial affairs. This means filling out long and complicated forms. The more time you have to fill out these forms the greater the chances that you will list everything required. And if you do that then you greatly reduce the chances of an unpleasant surprise after you file your bankruptcy.

Act strategically. Depending upon your circumstances you may benefit by postponing your bankruptcy to, for example, reduce the chances of creditors contesting your bankruptcy.

Protect assets. You can only protect certain property in a bankruptcy. One way to protect the value of such property is to sell it and use the proceeds to buy property you can protect. However, you can only do this before you file your bankruptcy.

Before filing a bankruptcy individual debtors must take a brief credit counseling course.

Filing

Bankruptcy begins with the filing of a petition and the financial disclosure paperwork discussed above. You file these documents with the clerk of court. Wisconsin clerks’ offices are located in Eau Claire, Madison, and Milwaukee.

You must then provide additional documents to the trustee. In addition the law requires that you state your intention regarding property you’ve pledged as collateral for debts. And, thereafter, that you perform your stated intention.

Automatic stay

The bankruptcy filing creates an injunction called an “automatic stay.” The automatic stay stops almost all collection activity.

Trustee meeting

About a month after you file your bankruptcy you will meet with a trustee in Eau Claire, Green Bay, Kenosha, La Crosse, Madison, Milwaukee, Oshkosh, Superior, or Wausau. The trustee will swear you in and ask you questions about your debts, assets, and related matters. Creditors may appear and ask questions as well; however, they seldom do.

Discharge

If all goes well, and in most cases all does go well, the court will issue you a discharge two to three months after the trustee meeting. The discharge will cover most debts. Examples of debts not covered in a Chapter 7 discharge include many (but not all) taxes, most student loans, and all debts arising from a divorce decree. A special Wisconsin statute allows debtors to obtain a satisfaction of discharged judgments.

If all does not go well then a creditor will file a separate lawsuit (called an “adversary proceeding“) asking the court to either (a) deny you a discharge or (b) except the creditor’s debt from your discharge.

Administration of estate

Typically, the discharge ends a Chapter 7. But in some cases the trustee thinks that he or she can make a recovery for creditors. Then the bankruptcy may stay open for months, or even years, while the trustee “administers” the case.

This page contains general information. Contact a WBG attorney for specific advice.
Wisconsin Bankruptcy Guide is provided by law firms designated as Debt Relief Agencies by the federal government because we help people file for relief under the Bankruptcy Code. We also provide other types of debt relief options.

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