Bankruptcy is a legal proceeding that relieves you of the responsibility of paying your debts or provides you with protection while attempting to repay your debts. The stated goal of the federal bankruptcy law is to provide the honest debtor with a fresh start. There are two types of bankruptcies:
• liquidation, in which your debts are wiped out (discharged) and
• reorganization, in which you provide the court with a plan for how you intend to repay your debts.
For both consumers and businesses, liquidation bankruptcy is called Chapter 7. For consumers, reorganization bankruptcy is called Chapter 13. Reorganization bankruptcy for consumers with an extraordinary amount of debt and for businesses is called Chapter 11.
A bankruptcy case is commenced by the filing of a petition with a court. You must also file a statement of your assets and liabilities and schedules listing your creditors. The property a debtor can keep through the bankruptcy is determined by the specific exemptions available under state law. In addition, residents of certain states, including Wisconsin, are allowed to choose federal exemptions instead of state exemptions.