Last time, we began discussing the common misconception that a bankruptcy filing puts a debtor at risk of losing all his or her assets. As we’ve pointed out, this is simply not true, though the extent of asset loss depends on the form of bankruptcy for which the debtor files. As we noted, a debtor may not lose any assets in Chapter 13 bankruptcy.
In Chapter 7 bankruptcy, a debtor will lose some assets because the process involves liquidation of certain assets to pay off creditors. Not all assets are liquidated, but only those classified as nonexempt. Different states have different rules regarding which assets are exempt and which are nonexempt, so it is important to consult an experienced local attorney for guidance.
Under federal bankruptcy law, states are allowed to adopt the exemptions laid out in the U.S. Bankruptcy Code or to establish their own exemptions in place of the federal exemptions. In some states, the debtor has the individual option to choose between federal exemptions or state exemptions, so Chapter 7 exemptions really depend on the state.
Wisconsin is among the states which allow debtors to select from a federal list of exemptions or a state list. Examples of property exempt under state law include: certain provisions for burial; certain business and farm property; child support; certain consumer goods; a limited value of federal disability insurance benefits; fire and police pension funds; a limited value of life insurance and annuities; and limited value for motor vehicles.
A particularly important one is the homestead exemption, which we’ll look at in our next post.
Sources:
United States Courts, “Chapter 7: Bankruptcy Basics,” Accessed June 21, 2016.
Wisconsin Bankruptcy Guide, “What assets can I keep if I file bankruptcy?,” Dan Freund, Accessed June 21, 2016.
Wisconsin Statute 815.18
