Wisconsin offers a unique bankruptcy alternative, often termed “Chapter 128” because it is located in Chapter 128 of Wisconsin Statutes. A Chapter 128 case is not considered bankruptcy in the same manner as a federal bankruptcy case and tends to be easier to file, though more expensive than federal Chapter 13 bankruptcy. Wisconsin debtors can also settle debts with debt settlement plans or debt consolidation loans, thereby eliminating the need to file bankruptcy.
Chapter 128 actions are different from federal bankruptcy cases, though they do appear similar in certain areas since the Wisconsin statute was originally modeled after federal bankruptcy law. Like some federal Chapter 13 cases, Chapter 128 cases involve a repayment plan, typically for a period of three years, during which a debtor pays back some or all of his debts. Chapter 128 permits debtors to include nearly any kind of unsecured debt, which is debt that is not secured by collateral. Debtors can also include secured debt, but creditors are allowed to seize the collateral if a debtor includes a secured debt in his Chapter 128 claim.
Filing Chapter 128
Chapter 128 is only available to Wisconsin residents who receive a regular paycheck, though a debtor may be able to file if his primary sources of income are government benefits or alimony payments. Once the debtor files, all creditor collection efforts must cease immediately, including garnishment of the debtor’s wages. Chapter 128 also stops interest from accruing on credit cards or similar debts while the case proceeds. The Wisconsin court appoints a neutral caretaker for the debtor’s case, called a trustee, and the trustee manages the debtor’s payments and distributions to the creditors.
If a Wisconsin debtor cannot file under Chapter 128, he still has alternatives to filing bankruptcy. One alternative is to create a debt settlement plan in which the debtor works out a plan with his creditors to allow him to pay off his debt gradually over a period of time. Sometimes creditors agree to forgive a portion of the debt. A debtor must work out a separate plan with every one of his creditors; however, creditors are not required to settle the debt. If a creditor forgives some debt, the debtor may have to pay taxes on the amount of the forgiven debt.
Debt consolidation plans are another alternative. Such plans typically involve consolidating debt into one monthly payment by obtaining an additional loan that will pay off the debtor’s outstanding debts. The debtor then must make payments on the debt consolidation loan. A debtor can hire a company to negotiate settlements with his creditors and combine the remaining debts into one monthly payment with a debt consolidation loan. Debt consolidation is not a court-ordered plan like Chapter 128 and some consolidation plans involve significant up-front fees or fees tacked on to a debtor’s monthly payments.