Individuals facing significant financial hardship may decide that filing for bankruptcy is the best option they have. Chapter 7 bankruptcy can be beneficial for individuals struggling with unsustainable levels of debt. In Bankruptcy the person filing a bankruptcy is referred to as the “debtor”. The persons or entities owed money are generally referred to as “creditors”.
CH 7 is a viable option for many people Provided that the debtor can pass a means test establishing that they make less than the median income established for their state of residence; and that their income minus household expenses isn’t so large it that it appears that the debtor can pay their debts when they become due. Depending on complexity of the case and how much the debtor cooperates in the process many can complete the Chapter 7 bankruptcy process in as little as a few months.
However, many people feel anxious about pursuing Chapter 7 bankruptcy because it comes with a requirement to liquidate certain assets that exceed exemption amounts. Each debtor is allowed certain minimum exemptions to apply to property they want to keep. For example if a debtor is using the Federal Exemptions (which is allowed in Wisconsin) he or she is allowed $5,025.00 to apply to the equity in one motor vehicle. The exemption for household goods is substantial at $16,850.00 per debtor. In addition, the federal exemptions contain a fairly generous “wild-card” that can be applied to any property the debtor wishes to exempt. However, if a debtor owns property and the value of the property exceeds exemption amounts, the court may require that the debtor hand the property over to a “Trustee” for sale. The “Trustee” is an agent appointed by the court to liquidate and sell non -exempt property for the benefit of unsecured creditors (i.e. those creditors that don’t have a pre-existing lien on property, like credit cards, personal loans, medical bills, etc)
Do people need to worry about losing their retirement savings during a Chapter 7 bankruptcy in Wisconsin?
Filers can utilize exemptions
Both federal exemptions and state exemptions protect retirement savings from liquidation. Provided that the filer has the funds in a specific and “qualified” retirement account, such as a 401(k) or an IRA. The account must qualify under our tax rules to be a “retirement account”. A person may have a sum of money in an account, such as a bank account, and call it his or her retirement account, but it will not qualify to be a “qualified” account with it own exemption. And attorney knows the difference and can help you sort through it. The protection is substantial and can over a million dollars in some instances OR the exemption can be unlimited. That is why it is crucial that you speak with a lawyer before deciding to cash out qualified retirement accounts to pay debts.
For example, Some people , under extreme pressure with debt, might withdraw funds from a retirement account to catch up on their debts. This is almost always a grave mistake. First, the debtor puts themselves at risk of tax harmful consequences that include a10% tax penalty plus taxation of the funds as regular income Additionally, they diminish their resources for retirement when they could have theoretically protected those funds during bankruptcy; and discharged the debt they paid off with the funds.
Many people are able to navigate the Chapter 7 bankruptcy process without ultimately liquidating any of their valuable assets learning more about the rules that guide Chapter 7 bankruptcy proceedings can help people secure appropriate and fair outcomes. Even individuals with valuable assets can obtain financial relief through bankruptcy with the right information and assistance.