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Wisconsin Bankruptcy Exemptions and Law
If you are a Wisconsin resident and in debt over your head, bankruptcy could protect you from creditors while you pay off or eliminate your debt. Bankruptcy offers people an option for ridding themselves of overwhelming debt and starting over without worrying about being harassed or sued by bill collectors. Additionally, Wisconsin has state laws in place that let residents protect some of their assets from creditors during bankruptcy.
The U.S. Bankruptcy Courts are federal courts governed by the U.S. Bankruptcy Code. However, federal law allows states to write laws about what property their residents can protect from creditors. Wisconsin has chosen to implement its own rules on exempt property, which is property that you can keep to help you get on with your life after bankruptcy.
Wisconsin is one of the states that allows you to choose between the federal exemptions in the Bankruptcy Code and state law exemptions. You are free to choose the system that works best for your financial situation, but you will need to stick with one system because you cannot pick and choose on an exemption-by-exemption basis.
To better understand the role exemptions play in the bankruptcy process, it helps to be familiar with the two types of personal bankruptcy:
- Chapter 7 bankruptcy is sometimes known as “liquidation" bankruptcy because you must turn over the property you cannot protect with an exemption to a bankruptcy trustee who will sell it and use the proceeds to pay your creditors. Exemptions can play a large role in Chapter 7 filings because you will often lose most of the property that is not covered by an exemption. In return for giving up your nonexempt property, you will usually exit bankruptcy free from nearly all of your debt. But you must meet strict income thresholds to qualify.
- Chapter 13 bankruptcy lets people who have a steady income reorganize most of their debt and pay it off in three to five years. The payments are made under a court-approved plan that usually eliminates some of your debt. Chapter 13 is popular with homeowners because they can often keep their homes.
One of the most important benefits you will enjoy under either chapter is the automatic stay issued by the court when you file. The stay stops almost all creditor collection activity, including foreclosures and court cases. This prevents collection agencies from harassing you and gives you the breathing room you need to resolve your debt problems.
Secured vs. Unsecured Debt
When you declare bankruptcy your debts will usually be categorized as secured or unsecured. The designation is important because the two types of debt are treated differently in Chapter 7 and Chapter 13, which will dictate how much debt you can eliminate.
Debt is considered unsecured when a creditor has no right to repossess your property for failure to pay. Credit card debt, court judgments, and medical debt are among the most common types of unsecured debt.
Since unsecured creditors hold no collateral for their debt, those debts are the most likely to be eliminated during bankruptcy. But some priority unsecured debts, like child and spousal support, can't be discharged.
A secured creditor has the right to repossess your property if you do not repay what you owe. Secured debt is usually the result of a loan transaction where you signed a contract giving the lender the right to seek a lien on the property you put up as collateral if you don't pay.
Since creditors retain their right to repossess the property in bankruptcy, you will usually need to give up the property or work out a repayment plan with the creditor. Home mortgages and car loans are the most common types of secured debt.
How Secured and Unsecured Debt Work in Bankruptcy
When you file under Chapter 7 you can usually discharge most of your unsecured debt. But secured debt is treated differently and can rarely be eliminated in a Chapter 7 case. Usually, you will need to choose from one of the following options:
- Return the property to the creditor. If you choose this option, you will lose the property, but you will usually be free from making additional payments.
- Keep the property and continue making payments. This is sometimes possible when an exemption covers the equity you have in the item.
- Purchase the property outright. This is rare in Chapter 7 cases because you usually need to turn over most of your cash assets to the trustee.
Chapter 13 bankruptcy lets you create a plan to repay your creditors over three to five years. The court must approve your plan and may force creditors to reduce or restructure your debt. Mortgage payments are not included in the plan, but the trustee may negotiate a payment agreement with the lender if you are behind on your payments.
In Chapter 13, unsecured creditors are paid with the disposable income left over after you have repaid your secured creditors. Any unsecured debt not paid under the plan is discharged when the plan has finished.
To file for Chapter 7 bankruptcy in Wisconsin you must show that your income is low enough to qualify. This is usually done through one of two means tests.
The first means test is simple: If your household income is less than the median household income for a household of a similar size in the state, you qualify. For example, U.S. Census data shows that the median household income for a three-person household in Wisconsin was $87,353 as of November 2020. If you live in a three-person household with an income below $87,353, you would qualify to file under Chapter 7 in the state.
If your household income is above the state median, you can still qualify under Chapter 7 based on your disposable income. Your monthly disposable income is calculated by subtracting your monthly expenses from your monthly income. If the calculation shows you have little to no disposable income each month, you can file under Chapter 7.
To file under Chapter 13 you will need to show that you have a steady income and unsecured debt of no more than $419,275. Your secured debt cannot total more than $1.26 million.
Wisconsin's exemption system may be used by anyone filing for bankruptcy in the state. If your property falls within one of the exemptions, you can protect it from creditors during bankruptcy and use it to start over when you are finished with bankruptcy.
As a general rule, when a married couple files for joint bankruptcy in Wisconsin, each spouse can claim the exemption if they own the exempt property together. This is often referred to as “doubling" the exemption.
Wisconsin lets you exempt up to $75,000 in the equity you have in a home you occupy or intend to occupy. That amount increases to $150,000 if you file along with your spouse and own the home together. The proceeds from the sale of the home are exempt for two years if you acquire another home.
State law limits the homestead exemption to a dwelling and as much of the surrounding land as is reasonably necessary to use it as a home, up to 40 acres.
The greater of 75% of your weekly income or 30 times the federal or state minimum wage is exempt if it is reasonably necessary for your support.
Additionally, the wages of inmates on work release or serving time in county jails or work camps are exempt.
Consumer Goods Exemption
Wisconsin lets you exempt up to $12,000 in consumer goods—sometimes referred to as “personal property." This is non-real estate property used by yourself or your family. Common examples of consumer goods include:
- Household goods and furnishings
- Sporting goods
- Musical instruments
Motor Vehicle Exemption
Up to $4,000 of the equity you have in motor vehicles is exempt, plus the unused portion of the $12,000 exemption for consumer goods.
Tools of the Trade Exemption
You can apply a $15,000 exemption to any tools, equipment, and professional books you use to pursue your trade. You can apply some or all of that exemption to a closely held or family business.
Insurance Benefits Exemption
The following insurance benefits are exempt:
- Life insurance proceeds
- Accident insurance proceeds
- Federal disability benefits
- Fire insurance proceeds
- Life insurance and annuity contracts that have not matured
Additionally, the dividends of up to $150,000 from unmatured life insurance and annuity contracts are exempt. That amount drops to $4,000 if issued less than two years before you filed for bankruptcy.
Pension and Retirement Exemptions
Most pension and retirement plans are exempt in Wisconsin, including:
- Tax-exempt retirement accounts such as 401(k)s, IRAs, and defined benefit plans
- Plans for public employees and some municipal employees.
- Benefits of police officers and firefighters who work in cities with populations of more than 100,000
- Military pensions
- Public and private retirement benefits
Public Benefit Exemptions
The following public benefits are exempt in Wisconsin:
- Social Security benefits
- Unemployment compensation
- Workers' compensation
- Veterans' benefits
- Bank deposits of up to $5,000
- Alimony and child support
- College savings accounts or tuition trust funds
- Wrongful death proceeds necessary for support
- Personal injury recoveries of up to $50,000
- Fire and casualty proceeds for property that was destroyed is exempt for two years after it is received
- Lost future earnings recoveries needed for support
- Burial plot, tombstone, and coffin
Where Do I File for Bankruptcy in Wisconsin?
There are two federal court districts in Wisconsin, each with its own bankruptcy court. The district bankruptcy courts can be found at the following locations:
The Eastern District of Wisconsin has bankruptcy courts in:
- Green Bay (hearings only)
- Oshkosh (hearings only)
The Western District of Wisconsin has bankruptcy courts in:
- Eau Claire
It will cost you $338 to file for Chapter 7 bankruptcy in Wisconsin and $313 to file under Chapter 13. The fees are the same if you represent yourself or using an attorney. If you can't afford the filing fee, you can ask to pay in installments over 120 days. If you earn less than 150% of the poverty line you can request that the fee be waived.
Most people filing for bankruptcy choose to have a lawyer represent them. While each bankruptcy case is different and fees can vary depending on where you live in the state, most Wisconsin bankruptcy lawyers will charge between $1,000 and $2,000 for a fairly straightforward Chapter 7 case. Attorneys will often charge between $2,500 and $3,500 for a Chapter 13 case that is not complex.
Need Help Filing for Bankruptcy in Wisconsin?
If you are having trouble paying your bills, hiring an attorney to represent you in bankruptcy may seem like an expensive luxury when you could file on your own. However, even simple bankruptcy cases can involve complex court filings and meeting strict deadlines. An experienced local bankruptcy attorney will help guide you through the filing process, represent you in court, and negotiate with creditors to ensure you retain as many of your assets as the law allows.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.