Things Chapter 13 bankruptcy does not cover

Many Americans are in debt. That’s the conclusion reached in multiple studies, including one from Motley Fool, a private financial and investing advice company based in Alexandria, Virginia. It revealed the average household debt was reportedly $101,915 as of the end of 2022 and that American households collectively carry over $17 trillion in debt as of the second quarter of 2023. While that is alarming, there is some good news insofar as most Americans recognize how much debt they carry and are slowly trying to dig themselves out of that debt. As of the writing of this article, the debt payment-to-income ratio is around 9.6% in America.

For those who might not know what that means, the average American spends over 9% of their monthly income on debt payments. For most people, that is manageable and does not markedly disrupt their lives. However, for others, it can mean the difference between being able to put food on the table and not being able to put food on the table. When debt becomes too much to handle, many families file for bankruptcy.

How To Decide Between Filing Chapter 7 and Chapter 13 Bankruptcy

Both Chapter 7 and Chapter 13 will negatively impact an individual’s credit; the difference comes down to how long each will remain on their credit report. According to Bankrate, a consumer financial services company in New York City, Chapter 7 bankruptcy, which erases most unsecured debts, such as medical bills, credit card debt, and personal loans, remains on an individual’s credit report for seven years. Chapter 13 bankruptcy, meanwhile, which allows individuals to keep their property and repay debts over time, typically 3 to 5 years, stays on their credit report for seven years. While Chapter 7 bankruptcy sounds like the more appealing of the two since it erases one’s unsecured debts, it only benefits low-income households. High-income households will have to go with Chapter 13 bankruptcy instead.

Not All Debt Is Dischargeable Debt: The Truth About Filing Bankruptcy

While it would be nice to have all of our outstanding debt discharged or included in a structured repayment plan, some debts don’t qualify for either. And those debts are known as non-dischargeable debts. Having made that distinction, examples of dischargeable debts, also known as unsecured debts, include the following:

• Auto accident claims
• Business debts
• Collection accounts
• Credit card charges
• Most civil court judgments
• Unpaid rent payments and money owed under lease agreements
• Past-due utility balances
• Personal loans
• Repossession deficiency balances from auto loans
• Unpaid medical bills
• Unpaid taxes and related tax penalties

Now that we are up to speed on dischargeable debts, let’s discuss their non-dischargeable counterparts. According to Wisconsin bankruptcy attorneys, non-dischargeable debts, which are applicable when someone files Chapter 7 or Chapter 13 in Milwaukee or anywhere else in Wisconsin, include the following:

• Alimony and child support payments
• Debts incurred from death or personal injury resulting from a DUI
• Debts not previously included in an initial bankruptcy filing
• Debts resulting from the malicious injury to individual or property
• Tax liens

It is worth noting that the above list is not all-encompassing; many other things fall under the non-dischargeable umbrella when filing for bankruptcy in Wisconsin. To that point, it is best to speak with a Wisconsin bankruptcy attorney to determine what constitutes dischargeable and non-dischargeable based on the specifics of your bankruptcy case.

Are There Alternatives To Filing Bankruptcy?

Most Wisconsinites are mindful of how badly bankruptcy can destroy their credit, and most only choose this option as a last resort. That makes sense when you consider how many alternatives there are to resolving outstanding debt that doesn’t involve ruining one’s credit for years. Studies show people who have a bankruptcy on their credit are less likely to be approved for a mortgage, car loan, credit card, or personal loan than someone who does not. And if they are approved, they generally get loans with a much higher interest rate than someone who never filed for bankruptcy. That aside, some alternatives for resolving outstanding debt while keeping your credit intact include

Negotiating With Creditors

Going through the process of securing a judgment to collect an outstanding debt from a debtor is the last thing most creditors want to do. Most would prefer to negotiate a lower monthly payment or allow the debtor to pay off the debt for a fraction of what they owe. After all, both options keep creditors out of court and at their business where they can make money.

Debt Consolidation

If you owe a lot of debt to multiple creditors, debt consolidation is another alternative to bankruptcy worth considering. For those unfamiliar with debt consolidation, it entails taking out a personal loan or borrowing against your home’s equity and using that money to pay off the balance owed on high-interest credit cards and other loans. Generally speaking, debt consolidation is a good fit for individuals with debt payments that don’t exceed 50% of their gross monthly income. And that’s according to NerdWallet, a personal finance company that prides itself on helping clients make better and more informed financial decisions. It further notes that debt consolidation is ideal for individuals who have a credit score that allows them to secure a 0% or low-interest debt consolidation loan.

Debt Counseling

If you feel like you’re in over your head in debt, debt counseling could be the financial lifesaver that keeps your head above water. In short, debt consolidation entails seeking help from a certified nonprofit credit counseling agency to help you manage your outstanding debt. The way it works is these agencies review your income versus debt and day-to-day living expenses and help you figure out a budget and a plan for getting back on track financially. Sometimes, that might entail negotiating with your creditors to lower your monthly payments or agree to a lower payoff amount to resolve your outstanding debt on your behalf. Other times, they work with you to figure out a budget that will enable you to pay off your debt as quickly as possible.

In summary, debt is part of adulting. While some people can get out of debt under their own steam, doing so can be a far more challenging proposition for others. Often, those are the ones who have to ask for help, usually from debt collection companies, debt counseling agencies, and, as a last resort, a well-versed Chapter 7 or Chapter 13 Wisconsin bankruptcy attorney.