Based on recent conversations with clients, it seems there is a common misperception that bankruptcy debtors automatically lose their home and all of their possessions in the bankruptcy. While a Chapter 7 bankruptcy is referred to as a “liquidation” bankruptcy, most debtors do not lose anything.
The Bankruptcy Code allows debtors to keep a certain amount of equity in their assets via exemptions. Wisconsin allows debtors to use either the federal set of exemptions or the Wisconsin exemptions. Each has its benefits; your attorney can help you decide which set of exemptions should be used in your case.
If you have less than $22,975 (using federal exemptions) or $75,000 (using Wisconsin exemptions) of equity in your home (value of the house – amount owed on all mortgages = equity), and are current on your mortgage payments, you can usually continue to make your mortgage payments and keep your house in a Chapter 7 bankruptcy. Married couples are allowed to double those exemption amounts. If you are behind on your mortgage payments, a Chapter 13 bankruptcy will allow you to cure the arrearage over 3-5 years.
The same principle applies to vehicles. The Wisconsin exemptions allow you to keep up to $4,000 of value in your vehicles and the federal exemptions provide a $3,675 vehicle exemption. If your vehicles are worth more than the exemption limits, there are ways to protect that excess equity.