DID YOU KNOW…Wisconsin Stats. Chapter 128 Debt Amortization: An Alternative to Bankruptcy

For those who are qualified wage earners residing in Wisconsin, Wisconsin law offers a very unique and attractive alternative to filing for bankruptcy relief under Chapters 7 and 13 of the U.S. Bankruptcy Code.  Chapter 128 debt amortization actions are not for everyone; however, for those individuals who do qualify, it offers a mechanism – which is considered to be a financial planning tool among practitioners – for getting your debt under control without the harsh effects on your credit score that a Federal Chapter 7 bankruptcy petition (and resulting discharge of debts) will bring.

Chapter 128 debt amortization under the Wisconsin Statutes is (compared to the other 995 Chapters in the Wisconsin Statutes) not a new law, however it is not well known (especially in the northern part of Wisconsin); yet it is unique compared to what is offered by other States and is an attractive alternative to those who qualify.  It wasn’t until the early 1990s that actions under §128.21, Wis. Stats., began gaining popularity by individual debtors in Wisconsin.  It is not bankruptcy, and it is not debt consolidation, but it is similar to both.

…THE NUTS AND BOLTS (SUMMARY):

  • With a §128.21 debt amortization petition, a debtor can consolidate only those debts he or she wants to manage.
  • Wis. Stats §128.21 Petitions are much less complex, far less expensive and far less invasive than filing for bankruptcy relief.
  • Late rents, utility bills, payday loans, credit card debts, speeding tickets, hospital bills, clinic bills, and other medical bills can all be included in a §128.21 debt amortization petition (not secured debts such as mortgages or car loans).
  • The Wis. Stats. §128.21procedure stops interest and late fees from accruing (being added to the total debt); EXAMPLE: if you include $15,000 of unsecured debt in the Petition, that amount is paid by you, in even monthly installments, over the course of up to 36 months (three years – the plans can be formulated to run for a shorter period of time, but only if it is feasible for the debtor) without the creditor being able to add interest or late charges or legal fees on top of the $15,000 you owe.
  • The procedure stops those creditors that are included in the Petition from garnisheeing wages or attaching assets, and stops utilities from cutting off power or heat.  The statute empowers your County Circuit Court  to appoint a Trustee to “administer” the debtors’ (your) estate and to issue a protective order that forces most types of creditors to accept payments of debts owed to them over the course of up to 36 months, despite the fact that those creditors may have a contract with you, the debtor, whose terms and conditions would normally dictate otherwise (the statute trumps private contracts between you and the creditor which are amenable to Wisconsin state-court jurisdiction).  By operation of this unique law, a §128.21 Petition stops interest from being added to your credit card debts and other similar debts that are included in the Petition.  Upon filing the Petition, the statute provides that any creditors named by the debtor who are amenable to the Courts’ jurisdiction, no matter where such creditors are located, are automatically prohibited from attempting or continuing to attach the debtor’s property or garnish his or her wages.  An interim order that is signed by the Judge after the filing of the Petition prohibits those listed creditors from trying to collect on their debts.  However, creditors are not prohibited from obtaining judgments or litigating judgments on included debts (but they are not able to collect on the debts pending the debtor’s §128.21 proceedings).
  • All of the debtor’s property is exempt from attachment.
  • Credit counseling courses and debtor education courses are not required, as compared to a Chapter 7 bankruptcy action.
  • You do NOT have to submit Tax Returns or anything similar to the Schedules required in a Chapter 7 bankruptcy Petition.  You do have to list the debts you wish to include, along with the names of the creditors, the total amount owed to each creditor; and you are required to sign the Petition in good faith and under oath while asserting that, after consideration of you total financial position, you will be able to and intend to make the regular, monthly payments to the Trustee for the benefit of those creditors who are included in your Petition.
  • There is no “Means Test” that you have to satisfy, but again, you do have to sign the Petition in good faith asserting that your financial position will allow you to make the regular monthly payments consistent with the 128 plan.
  • The Petitions are submitted by mail, and very rarely is there a requirement for hearings or trials or actual presence in court.
  • The filing fee is much, much less compared to filing a Chapter 7 Petition under the Federal Bankruptcy Code [Currently $306 Filing Fee for a Chapter 7 bankruptcy Petitioner versus a $31.50 Filing Fee for a Wisconsin §128.21 Debt Amortization Petition].
  • If you hire an attorney to assist you, the attorney fees are also much, much less than they are compared to the attorney fees for a Chapter 7 Petition.
  • A §128.21 Petition and plan usually will not have the drastic, negative effect on your credit score that a Federal Chapter 7 bankruptcy Petition and resulting discharge of debts will have.
  • You DO end up paying back the debt(s) included in the §128.21 plan – over the course of three years (36 months) – but those creditors included in the Petition are prohibited from adding any additional interest charges or late fees or penalties.
  • The Court appoints a Trustee to whom you make monthly payments towards the debts of creditors included in the Petition; the Trustee receives your payments and disburses the payments to the creditors named in your Petition on a regular, monthly or quarterly basis.
  • The Trustee is paid  by you in one of two ways:
    • If you choose to have the monthly payments come out of your paycheck via your employer, the Trustee may charge you up to 7% of the amount you send to him or her.
    • If you choose to send the Trustee the monthly payments yourself –without involving your employer – the Trustee may charge you up to 10% of the amounts you send to him or her
    • Creditors are allowed to object to the Trustee’s plan, but rarely do.

 For more information on §128.21 Petitions and Chapter 7 bankruptcy actions, please contact Seidl Law Offices, LLC at (715)365-9008.