Bankruptcy should be a last resort for people facing more debt than they can possibly repay. But stuck somewhere between people who can't pay and those who can is another kind of debtor: the debtor who can pay if he or she can get payment terms adjusted.
Oftentimes, debtors work directly and successfully with creditors to negotiate new payment terms, but for those unable to negotiate feasible terms, Wisconsin has another option. It's a debt amortization proceeding, commonly referred to as a Chapter 128, and allows debtors to amortize problem debts through a scheduled repayment plan. In a Chapter 128, debtors can choose which creditors they would like to include in the petition while continuing to pay creditors remaining outside of the petition. Additionally, a Chapter 128 stops interest and penalties from accruing on specified accounts and prohibits those creditors from continuing to collect on their debts, so individuals are capable of repaying debts in full.
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In order to file, you must be a Wisconsin adult resident and wage earner. It's not clear whether Social Security, maintenance or unemployment income count as wages, but judges generally want to work with debtors to be successful in paying their debts. Traditionally, judges have been inclined to confirm plans as long as there has been some sort of income stream. That trend may be changing, however, narrowing the types of income that constitute wages.
Upon filing a 128, an automatic stay goes into effect for creditors included in the petition, preventing interest from accruing and creditors included in the petition from taking any actions to pursue payment. With a Chapter 128, the debt must be repaid in full within 36 months. If the petitioner defaults on payments, the 128 petition is dismissed and interest and penalties begin accruing again. Additionally, interest that would have accrued during the proceedings becomes collectible, as if the proceedings had never been filed.
Once the repayment plan is approved, a trustee is appointed. The trustee will notify the creditors who will have a chance to object to the amount owed or the plan itself. The trustee will continue to serve as an intermediary throughout the repayment process. Debtors then pay the debt through the trustee, via direct payments or voluntary wage assignments. The trustee is compensated anywhere from 7 percent of the debt for a wage assignment to 10 percent for direct payments.
A 128 proceeding provides several benefits to debtors.
Cost - The filing fee for a 128 is approximately $30, while a filing fee for a bankruptcy is $300 to $400. Additionally, attorneys' fees for bankruptcies tend to be two to three times more expensive than those for Section 128 proceedings.
Ease - Debtors in bankruptcy are required to submit a complex petition and schedules, including all of their assets, creditors and finances, along with a calculation of exemptions. They are also required to submit taxes and proof of secured debts to the bankruptcy trustee. A Chapter 128 is usually one to three pages of a petition where the debtor only list debts he or she wants to include in the repayment plan. So if you have five credit cards, but only one is a problem, you need list only the one where you're seeking relief from interest and penalties.
Stigma - For people who are concerned with the stigma or morality of filing bankruptcy, a 128 is considered "debt amortization" and provides a way for them to make good on their debts.
A Chapter 128 proceeding is a good option for people who are struggling to repay debt, giving them an opportunity to meet their obligations. But there are some instances where bankruptcy may truly be the only option. If you're struggling with debt repayment, consult an experienced bankruptcy attorney. Many offer complimentary initial consultations to help you identify the steps that are best for you.
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