Dealing with overwhelming debt is a challenging and often stressful experience. Fortunately, there are legal mechanisms in place to help individuals regain control of their financial lives. Two common options in this realm are traditional bankruptcy and Chapter 128. In this blog post, we will explore the key differences between these two debt relief options, helping you make an informed decision about the path that best suits your financial circumstances.

1. The Basics: Bankruptcy vs. Chapter 128

   • Bankruptcy: Bankruptcy is a legal process that allows individuals and businesses to discharge or restructure their debts under the protection of the court. There are different types of bankruptcy, with Chapter 7 and Chapter 13 being the most common for individuals.

   • Chapter 128: Chapter 128, often referred to as the "Chapter 128 wage earner's plan," is specific to the state of Wisconsin. Unlike bankruptcy, it doesn't involve a federal court process but is a statutory debt repayment plan designed to help individuals reorganize and pay off their debts.

2. Scope and Applicability:

   • Bankruptcy: Bankruptcy is a federal process that applies to individuals and businesses across the United States. The type of bankruptcy filed (Chapter 7 or Chapter 13) depends on the debtor's financial situation and goals.

   • Chapter 128: Chapter 128 is unique to Wisconsin, and its application is limited to residents of the state. It provides a local alternative for debt reorganization outside the federal bankruptcy system.

3. Asset Retention:

   • Bankruptcy: In Chapter 7 bankruptcy, non-exempt assets may be liquidated to pay creditors. Chapter 13 allows individuals to retain their assets, but a court-approved repayment plan is established.

   • Chapter 128: Chapter 128 allows individuals to retain control of their assets without the risk of liquidation. It is particularly beneficial for those who want to protect their property from the potential consequences of bankruptcy.

4. Repayment Plan Duration:

   • Bankruptcy: Chapter 7 bankruptcy is typically a quicker process, often lasting a few months. Chapter 13 involves a three to five-year repayment plan.

   • Chapter 128: Chapter 128 also involves a repayment plan, lasting between three to five years, allowing debtors to gradually pay off their debts without resorting to full bankruptcy.

5. Eligibility and Requirements:

   • Bankruptcy: Eligibility for bankruptcy is determined by means testing, income levels, and the type of debts owed. Some debts, like student loans and certain tax obligations, may not be dischargeable.

   • Chapter 128: Chapter 128 is generally more accessible, as it does not involve federal eligibility criteria or the stringent means testing associated with bankruptcy.

6. Credit Impact:

   • Bankruptcy: Both Chapter 7 and Chapter 13 bankruptcy will have a negative impact on the debtor's credit score, but this impact diminishes over time.

   • Chapter 128: While Chapter 128 also affects the credit score, it may be perceived as a less severe option than bankruptcy, as it is not as widely recognized outside Wisconsin.

Conclusion:

Choosing between bankruptcy and Chapter 128 is a significant decision that depends on various factors, including the debtor's location, financial situation, and long-term goals. While bankruptcy is a federal process with broader implications, Chapter 128 offers a more localized alternative, allowing Wisconsin residents to reorganize their debts while retaining control of their assets. Understanding the nuances of each option is crucial in making an informed decision that aligns with your unique financial circumstances

Attorney Nathan DeLadurantey offers free consultations to explain your legal rights in Wisconsin. Free consultations can be scheduled online.