Debt Settlement:

Before discussing their debt with an attorney, many people decide to tackle the debt themselves by negotiating with their creditors to accept lower payments, negotiating with creditors to accept a lower overall amount to payoff the debt or by hiring a debt settlement company to do the negotiating for them. There are a few things to consider when using a debt settlement company to ensure the process goes as expected.

1. The Order Your Debts Are Paid:

The first thing to consider is how the debt settlement company allocates your payments. Some companies will take your payments and allocate them equally to all of the creditors that you have negotiated settlements with. Other companies may take your payments and allocate them to your smallest or oldest debts first. The latter option is not recommended and can have negative consequences, as some of your creditors may be left in the dark and not receive a single cent for some time. This often leads to those in-the-dark creditors pursuing their legal rights against you, which could result in a garnishment of your wages or a judgment against you.

2. Research, Research, Research:

The second thing to consider is whether the debt settlement company you are considering using is following the law. Debt settlement companies who do business with consumers in Wisconsin must be licensed as an “adjustment service company.”[1] These companies are prohibited from collecting up-front fees from you and must follow specific disclosure requirements as to what their services and fees include. It is highly recommended that consumers considering using a debt settlement company do thorough research to avoid possible unintended consequences, such as digging yourself into deeper debt through interest and fees or even worse, falling victim to fraudulent debt consolidation company.

3. Credit and Tax Consequences:

While some debt settlement companies may claim that their assistance will not hurt your credit, that is generally not the case. Because you are agreeing to pay your creditors in an amount less than what is actually owed, your creditors will report this to your credit bureaus, and it will show up on your credit report. Additionally, cancelled debt is reported to the IRS and considered as income, which may then affect your income taxes.

Chapter 128:

Wisconsin Statues, Chapter 128, offers a voluntary debt repayment plan, often colloquially referred to as “Chapter 128”. Similar to debt settlement, you may pick and choose which debts to include in your debt repayment plan, however, with chapter 128, you may not negotiate your debts down to a lower, overall settlement amount. Rather, when you file your petition with a Wisconsin court, the debt owed at the time of filing is then amortized over 3 years into equal monthly payments.

The huge benefit to Chapter 128 is that it stops interest from accruing on the accounts that you include in the plan and that the creditors who are included in your plan are then prohibited from attempting to collect that debt. Therefore, the debt collector phone calls stop as do the fears of garnishment of your wages.

Chapter 128 is not for everyone. It is used for unsecured debt, such as credit card bills or medical bills, and cannot be used for secured debt, such as your mortgage or car loan. You must earn a consistent income to file and certify that you are financially able to make your monthly payment. It is highly recommended that you meet with an attorney to discuss the process and assist with calculating your debt payment to ensure it fits within your financial means, to avoid the pitfalls that come with failing to make all of your chapter 128 payments.

Chapter 7 Bankruptcy:

While debt settlement and Chapter 128 involve paying your debts back, Chapter 7 bankruptcy is often deemed a “fresh start” as it wipes your debts out, without having to pay them back. That statement may make Chapter 7 seem like the best option, however, not everyone qualifies for Chapter 7 bankruptcy. To file for Chapter 7 bankruptcy, your income must fall under certain limits based on your household size.

Even if you qualify for Chapter 7 bankruptcy, it may not be your only or best option. A Chapter 7 bankruptcy stays on your credit report for 10 years which may make it an unappealing option to those employed in certain financial professions or those who are trying to apply for credit or purchase a home in the very near future. The process of filing for Chapter 7 bankruptcy also involves a thorough analysis of your assets to determine whether they are exempt from being taken by the bankruptcy trustee and sold to satisfy your debts. If certain assets, like your home, are not exempt, you may want to look into either Chapter 128, debt settlement, or a Chapter 13 bankruptcy.

Schedule a consultation with Wynn at Law, LLC today to discuss your debt relief options

If you are already enrolled in a debt settlement program and curious as to what legal options you may have or if you are just starting to tackle your debt, our attorneys are here to assist you. Contact Wynn at Law, LLC today for a consultation at 262-725-0175 or visit our website’s contact page. Wynn at Law, LLC is based in Southern Wisconsin and has offices conveniently located in Salem, Delavan, and Lake Geneva, Wisconsin.

[1] DFI Dealing With Debt Problems (Continued)

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Land contracts are written agreements between a buyer and seller of real estate in which the seller provides financing to the buyer on agreed upon terms. The property under the contract can range anywhere from vacant land to an apartment building. Once the parties have executed their agreement and the buyer has made a down payment (if required) to the seller, the buyer can then obtain possession of the property immediately.

Why use a land contract?

For those experiencing trouble obtaining a traditional bank loan due to low credit or a recent bankruptcy filing, land contracts can provide a way for buyers to bypass the bank and instead work directly with the seller to finance the property. A Seller may also benefit from a land contract if the property being sold does not qualify for traditional lending. Land Contracts may also be an attractive option for selling between family members – particularly for adult children seeking to buy their parent’s home. Parties are often able to work out more favorable financing terms than what the bank can offer, making land contracts great options for first-time buyers in a less than favorable market.

How do land contracts work?

Like a mortgage, a buyer is still going to make a down payment on the property followed by installment payments, but these payments go directly into the seller’s pocket. The contract itself will work out payment frequency, but typically payments are made monthly with one final balloon payment at the end. The balloon payment is the balance of the loan owed to the Seller.  The idea is that by the time the buyer reaches the final balloon payment and may need a loan to make that payment, enough time has passed to let the buyer’s credit heal thus allowing him or her to get a traditional bank loan. In some cases, the parties will agree to pay the total sum of the purchase price in monthly payments and no balloon payment will be required.

Land contracts are also sometimes referred to as “contracts for deed” because that is essentially the buyer’s goal – once all of the land contract’s terms are fulfilled, the seller will transfer ownership to the buyer via deed.

What happens if the buyer defaults on payments?

Because land contracts are legally binding contracts, a seller has a few options when a buyer fails to make timely payments:

• The seller could file suit for breach of contract seeking reimbursement through money judgement, garnishment, or other means,
• The seller could file suit seeking termination of the land contract (most appropriate when the buyer has simply disappeared), or
• The seller could seek foreclosure, giving the buyer a final opportunity to pay, and either having the property revert to the seller or have it sold if the buyer foregoes this final opportunity.

These options may vary depending on the land contract’s terms and the state where the property is located which is why a seller in a land contract should be vigilant in drafting the contract so as to include desired remedies in the event of a buyer’s default.

Is a lease-to-own agreement different than a land contract?

Lease-to-own agreements operate much differently than land contracts, as these agreements typically give a tenant the option to purchase the property at the end of the lease term for an agreed-upon price or agreed-upon future value. Whereas the payments made during a land contract are subtracted from principal and interest, payments that a tenant makes during a lease-to-own agreement may not necessarily count towards the price that the tenant ultimately pays to exercise their option to purchase, unless a rent premium provision is added. However, even with a rent premium provision, these agreements rarely allow the entire rent payment to be credited towards the purchase price.

Lease to own agreements often also charge tenants an option fee – this is an additional charge a tenant pays upfront to preserve their right to purchase at the end of the lease term. A tenant who ultimately decides not to exercise their option to purchase generally loses the additional rent premiums and option fee, as these are most often non-refundable.

There is a significant difference between title rights in land contracts and lease-to-own agreements. Buyers in land contracts hold equitable title to the property. This means that as long as the buyer is making the agreed-upon payments, the buyer has the absolute right to occupy the property and continue towards their right to purchase that property. While the seller in a land contract is still the holder of legal title, the seller cannot try to sell the property to anyone else.

A tenant in a lease-to-own agreement does not hold equitable title. The distinction between a buyer in a land contract with equitable title and a tenant in a lease-to-own agreement who holds no equitable title, is influential on which party pays taxes, insurance, and maintenance/repair fees. For example, it is standard for a buyer in a land contract to pay the real estate taxes and property insurance, whereas in a lease-to-own agreement, it is more typical of a landlord to pay those expenses.

The pros and cons of a land contract:

As a buyer in a land contract, the pros are obvious: the opportunity to obtain financing on property without a bank. However, sellers should be cautious of who they decide to contract with. Unlike banks, individual sellers do not have the luxury of obtaining comprehensive background information from a buyer and assessing whether this is a risk worth taking.

Parties seeking to enter into a land contract should seek the assistance of an attorney for drafting and explanation of its terms and conditions. Both parties will be better off if they fully understand their obligations and liabilities that can arise when contract terms and conditions are not followed.

Contact us today for a consultation at 262-725-0175 or our website’s contact page. Wynn at Law, LLC is based in Southern Wisconsin and has three office locations: Lake Geneva, Delavan, and Salem.

The post What is a Land Contract and How does it Work? appeared first on Wynn at Law, LLC.

Credit reports are generated by three credit reporting agencies (CRAs) – Equifax, Experian, and TransUnion. Your credit report may vary depending on which agency the report comes from, as creditors can choose which bureau to report to and not all creditors report to every bureau. To pull your credit report for free from any of the CRAs, visit annualcreditreport.com.

What is Included in a Credit Report?

Contrary to popular belief, most credit reports do not contain your credit score without paying an additional fee. Rather, a credit report contains information related to your borrowing and payback history, as well as other information valuable to lenders. For example, it is typical to find the following types of information on your report:

• Past and current credit accounts/loans,
• Payment history – such as on-time, missed, or late payments (including amounts in collections)
• Foreclosures and repossessions,
• Bankruptcies,
• Past and present addresses,
• Relevant public record information such as liens, civil suits, and judgments, and
• Companies who have accessed your credit report

Why Would I Need to Access My Credit Report?

a. Applying for a loan

It is a good idea to access your credit report prior to applying for a loan or any other large credit-related purchase. This allows you to be prepared for what your lender will see and make sure that the report is accurate. It is not uncommon for a credit report to contain errors, which is why it is recommended to check your report from all three agencies at least once a year.

b. Scanning your report for errors

Any errors on your report can be disputed with the credit bureau who issued the report, the company whose information is inaccurate, or with the Consumer Financial Protection Bureau (CFPB). The CFPB recommends first disputing the error with the credit agency (Experian, Equifax, or TransUnion) by explaining the error and providing any supporting documentation. The CFPB’s website provides sample templates for filing disputes and other helpful dispute-related information, which can be accessed here. If the agency finds an error, it will report the error to the other two agencies.

What About Credit Scores – How Do I Find Mine and What Affects It?

The three credit agencies discussed above also create a credit score, which is a 3-digit number ranging from 300 to 850. Credit scores can also be accessed by most credit card companies/lenders. However, each agency’s credit reporting algorithm is different, which will result in different scores.

One well-known credit scoring agency is FICO, which generates a FICO-score. A FICO-score is the same thing as a credit score, just based on FICO’s credit reporting algorithm. The FICO scoring system is similar to most other credit scoring companies and thus a helpful guide for what factors affect your score. Under this system, there are 5 key factors[1]:

1. 35% of your score is based on your payment history:
   • Includes late payments – the later they are, the worse for your score
   • Includes accounts sent to collections
   • Includes bankruptcies, liens, foreclosures, and other public info
   • Takes into account the time the time since a missed payment and frequency of missed payments
2. 30% is based on your credit utilization:
   • Calculated by comparing your available credit to the amount you utilize – lower utilization is better for your score
3. 15% is based on the length of your credit history:
   • Old accounts can help boost your score
4. 10% is based on new credit accounts/ how many total accounts you have open:
   • Opening new accounts requires a lender to do a hard inquiry, which can temporarily lower your score
   • Opening may new accounts within a short period of time may lower your score
5. 10% is based on the types of credit you have (your credit diversity):
   • It is better for your score to have a mix of accounts – such as a mortgage loan, car loan, and credit card loan

What is the Deal With “Freezing” my Credit and When Should I do That?

A credit freeze temporarily stops lenders from accessing your credit report. People may freeze their credit if they have been the victim of fraud and are worried that the fraudster is attempting to open new accounts in their name. Freezing your credit will not lower your score and is free to do, but you must remember to un-freeze your credit (and dispute any fraud on your report) prior to opening a new account. To freeze your account, visit each of the three agencies’ websites and follow the instructions.

Conclusion

The best advice when dealing with your credit report and credit score is to be proactive – check what is on your report regularly and make sure it is accurate, dispute errors, and initiate a credit freeze when necessary. Do not be passive when it comes to your credit – investing in your financial health requires more than checking your score.

Schedule a consultation with Wynn at Law, LLC today to discuss your debt relief options and how the options affect your credit report and credit score.

Contact us today for a consultation at 262-725-0175 or our website’s contact page. Wynn at Law, LLC is based in Southern Wisconsin and has three office locations: Lake Geneva, Delavan, and Salem.

[1] How are FICO Scores Calculated? | myFICO

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