Debt Counseling Or Settlement
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 a portion of your income.
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 from creditors, to settle debts, unless you can achieve a permanent solution to your financial crisis thereby.