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Helping Clients Seeking Debt Relief
As of 2022, the average American had more than $100,000 in debt, and many had much more. If you’re wondering how you’re going to pay your bills each month or are behind on payments for credit cards, medical bills, and other debts, filing for bankruptcy may be an option. However, it’s not something to enter into lightly. It’s important to work with a Wisconsin bankruptcy lawyer to understand what types of bankruptcy are available to you and the potential long-term consequences of choosing this option.
If you’re drowning in debt and you’re not sure how to get out, call the law office of West & Dunn to speak to a bankruptcy attorney. Our legal team can talk with you about the different bankruptcy options as well as alternatives that might be available for your situation.
What Are the Different Types of Bankruptcy?
It’s a common misconception that there is only one way to file bankruptcy. However, there are six distinct types of bankruptcy, varying for individual and business use. And some options, such as Chapter 12 bankruptcy, are for specific circumstances, such as farmers or commercial fishermen. The most common types of bankruptcy are Chapter 7 and Chapter 13 for individual consumers and Chapter 11 bankruptcy for businesses.
Chapter 7
Chapter 7 is the most common bankruptcy process for individuals dealing with overwhelming debt. When you file a Chapter 7 bankruptcy, a federal court trustee is appointed to oversee it and supervise the sale of your nonexempt assets. Assets like your personal car, tools you need for work, or basic furniture like your bed and couch are generally exempt. Assets such as tractors, campers, or other items can be ordered to be sold to repay your creditors. Once anything that can be sold has been and the balance applied to your debts, any remaining debt that is eligible to be cleared in the bankruptcy is discharged.
Debts that cannot be discharged in bankruptcy include student loans, tax debts, and child support or alimony arrears. If these make up the majority of your debts, it may be better to discuss bankruptcy alternatives with an attorney.
Chapter 13
Chapter 13 bankruptcy has a slightly different structure that allows you to retain some property. For example, those who want to keep their house may choose to file this type of bankruptcy. When you file for Chapter 13 bankruptcy, you negotiate a play to pay off some or all of your debt with the bankruptcy court. You make one lump payment to the bankruptcy trustee each month, and they use that to pay off your debts. Once the payments are complete as agreed — which generally takes three to five years — any remaining eligible debt is discharged.
Chapter 11
Chapter 11 is one of the most common bankruptcy filings for businesses. It is designed to allow the business to keep operating as usual and restructure its debts. While the bankruptcy is active — which can take several years — the business is limited in what decisions it can make. For example, it can’t sell off certain assets, expand to another location, or end a rental agreement without the permission of the courts. Chapter 11 bankruptcies are complicated and require the assistance and legal counsel of a bankruptcy attorney.
What Are Some Bankruptcy Alternatives?
While filing for bankruptcy can provide much-needed debt relief for many Wisconsinites, it’s not the only option. Here are some alternatives to explore before considering bankruptcy.
Loan Modifications
Many lenders have programs in place designed to help those who are struggling to make their payments. By calling your lender and being honest about your situation, you may be able to lower your interest rate, increase your loan term, or skip a payment or two. It’s generally best if you can request these options before being late on a payment, but it doesn’t hurt to call and find out what the lender can do at any point. Most lenders would rather have some money than no money and may be willing to work with you to come up with a more affordable arrangement.
Liquidating Assets
If you have property you can sell for a profit, such as real estate, an extra vehicle, or personal items like furniture and jewelry, this can help you pay off debt. However, it’s important to consider this step carefully, as selling items you actually need could end up causing you more financial strain in the long run.
Debt Consolidation
Debt consolidation is one of the most common bankruptcy alternatives. You can consolidate credit card debt by moving it all into a lower interest loan on your own or use a debt relief agency. These agencies generally have debt negotiation services where they contact your creditors to negotiate lower payments or other terms that make it easier to pay off your debt. You generally pay the agency one larger payment per month, and they break it up among your debts. Not all debt consolidation services or credit repair agencies are reputable, however. It’s always important to do your research on any company you may be considering using. Talking with one of our consumer bankruptcy attorneys can also help you identify reputable agencies or other bankruptcy alternatives.
What Are the Consequences of Filing for Bankruptcy?
While bankruptcy proceedings can help you get rid of debt and make it easier to regain your financial footing, there are real consequences to be aware of. First, it can mean your credit score takes a big hit. Depending on your credit situation prior to filing for bankruptcy, your credit score could go down by as much as 150 points. However, this may not be as bad as it seems. If you’ve been behind on payments for a while, your credit score may already be low enough that going lower doesn’t have much effect when it comes to interest rates or other credit-dependent products. A bankruptcy also stays on your credit report for seven to ten years, which can have a long-term impact on your ability to get loans or finance property in the future.
Filing for bankruptcy also has major implications for your property. If you file for Chapter 7 bankruptcy, you will have to sell off any assets that aren’t exempt from the bankruptcy to be able to pay your creditors. This could mean selling possessions that have sentimental value or that you still use, which can be stressful emotionally and mean you have to buy something else or try to live without.
Living with a high level of debt is incredibly stressful and can take a toll on your physical and emotional health. Find out if filing for bankruptcy could offer some relief. Call the law firm of West & Dunn at 608-490-9449 to schedule an appointment with one of our Wisconsin bankruptcy lawyers.