May 2015

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By Attorney Elizabeth J. Schweiger


            A debt amortization, commonly referred to in Wisconsin as a “Chapter 128" given that it falls under that chapter of the Wisconsin statutes, is essentially the Wisconsin state equivalent to a Chapter 13 bankruptcy in that it provides for a debtor to enter in to a debt repayment plan.  It is not a bankruptcy, though it has many similarities.  Chapter 128 was created in 1937 and was modeled after some of the federal bankruptcy provisions.1  The intent of the Chapter was to aid individuals in paying their debts to avoid bankruptcy and to protect them from high interest rates.2  Instead of declaring all debts, income, and assets, a debtor can consolidate just the debts he/she wants to manage.  No tax returns need to be filed and no credit counseling course has to be taken.  There is also no means test.  A debtor can file for this type of protection right away after the last case is dismissed unlike the two, four, six, and eight year rules that apply in federal bankruptcies.  Unlike a Chapter 7 bankruptcy, filing a Chapter 128 debt amortization does not discharge the debt without repayment.  All included debts must be paid in full via a three-year repayment plan before the trustee will move to dismiss the case and file a report of completion.    


            This particular article focuses on section 128.21, Wis. Stats. – – voluntary proceedings by wage earners for the amortization of debts.  This section provides for the establishment of a personal receivership where a debtor may amortize certain debts through a monthly payment arrangement.3  The principal source of income for the person wishing to file for said relief needs to consist of wages or salary.4  In such a case, the debtor would file a petition stating how he/she is unable to meet current debts.  After the petition is filed, no execution, attachment or garnishment may be commenced or enforced unless the claim is not included in the debtor’s petition.5  However, a creditor may litigate and obtain a judgment against the debtor even after the petition is filed.6  A trustee will either recommend an amortization plan or report to the court that a plan is not feasible or needed.7  The court then decides whether to approve or amend the trustee’s amortization plan or dismiss said proceedings.8


            For purposes of this article, let’s assume that after completion of a supplemental examination the debt collector determines that a debtor is self-employed.  Let’s further assume that the self-employed debtor is not a W-2 employee, but is instead an independent contractor.  Simply put, 1099's and W-2's are two separate tax forms for two different types of workers.  If someone is a W-2 employee, payroll taxes are automatically deducted from their paycheck and then paid to the government through his/her employer.  Types of earnings that are included on a W-2 are wages, salary and tips.  This statement is completed by the employer and is required by law.9  If someone is a 1099 employee, on the other hand, they get a 1099 form.  They are responsible for calculating their own payroll taxes and then submitting the sum to the government on a quarterly basis.


            For purposes of our hypothetical, let’s assume the debtor is Mr. Smith and his income is derived from Smith Snow Removal LLC.  He does not get paid a salary or wage, nor does he receive a W-2.  Instead, his income is based on the revenue generated by Smith Snow Removal LLC and he receives a 1099 form.  Mr. Smith would not be able to file a Chapter 128.21 petition because he does not earn wages.  Mr. Smith’s principal source of income is not wages or salary, but is instead derived from money that Smith Snow Removal LLC generates.  Mr. Smith’s income is not consistent, but varies.  There is also not a traditional employer-employee relationship here.  Mr. Smith receives a 1099-MISC from Smith Snow Removal LLC at the end of the year, not a W-2.  The statue was designed for debtors who have a steady income of wages or salary and who can make regular weekly or monthly payments to satisfy the debt.0


            In conclusion, a debtor, who is self-employed should not have his wage amortization granted because his principle source of income is received from self-employment/independent contractor work not from wages or salary.  His income is also not consistent so he won’t be able to make regular payments under said plan.



1 See Chapter 128: Wisconsin’s Bankruptcy Alternative, Murrell. Wis. Law. May 2008.

2 See Personal Receivership: An Alternative to Bankruptcy, Johnson. Wis. Law. Sept.                       1990.

3 See Wisconsin Statutes Chapter 128.

4 Wis. Stat. § 128.21(1).

5 Wis. Stat. § 128.21(2).

6 Wis. Stat. § 128.21(7).

7 Wis. Stat. § 128.21(3)(a)(b).

8 Wis. Stat. § 128.21(3r).

9 26 U.S. Code § 6051(a).

10 Wis. Stat. § 128.21(3)(b).

Posted: 5/19/2015 8:32:48 AM by Tom Connor | with 0 comments