Wisconsin Debt Relief
Seeking Relief from Financial Distress
These pages are not intended to provide specific legal advice for your legal matter. Only after consultation with an attorney experienced in handling debt relief options should you take steps to resolve your financial hardship.
If you find yourself in financial trouble, there are four basic options to consider:
Bankruptcy provides a legal and court-supervised way to be relieved of the personal obligation to pay debts or a way to propose a repayment agreement with creditors based on your terms. In most bankruptcies, a discharge of debts is received at the end of the proceedings. This discharge means that there is no further personal obligation to pay the debts that were listed in the bankruptcy. Some form of bankruptcy relief has been around since our country started and even earlier in other countries. It is a legitimate means of dealing with financial distress caused by loss of income, divorce, foreclosure or other financial difficulties.
Before deciding on a course of action for your particular case, consultation with an experienced bankruptcy attorney is the best first step toward resolving your financial problems.
If you do not have enough debt to file bankruptcy and/or want to pay your debts without threat of garnishment, a Chapter 128 Debt Amortization Plan may be a good option. A Chapter 128 procedure, also called a debt consolidation, is a state court action that requires creditors to accept repayment of debt over a three-year time span at no interest. This proceeding does not work for all debts – it cannot be used for federal taxes, student loans or secured debts. It also requires 100 percent payment of the principal of the debt(s).
In some cases where only a few debts are a problem, the best option may be to work directly with the creditor(s) to settle the debts. However, settling or paying off debts outside of bankruptcy may be a taxable event. For example, if a creditor settles a $10,000 debt for $5,000, the IRS will consider the $5,000 that was written off to be counted as taxable income to you.
In cases involving multiple debts, it may be better to work with a debt counseling agency that can work out a repayment plan with all your creditors. Only a legitimate agency should be used. Stay away from the ones you see on late-night TV. In the Milwaukee area, Consumer Credit Counseling Service is a good choice. Do not try to settle your debts on your own by taking out a second mortgage or depleting your retirement accounts. It is almost always a bad idea to use up these resources, which would otherwise be exempt or safe from creditors, to settle debts.
For some people whose income (for example, Social Security retirement or pension) or assets (such as household goods and older cars) are protected, or “exempt,” from collection by creditors, doing nothing may be an option. However, for others, such as the temporarily unemployed, it may be only a short-term answer to a longer-term problem.