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)

The post Which is right for you – Chapter 7 Bankruptcy, Debt Settlement, or Chapter 128? appeared first on Wynn at Law, LLC.

A Financial Power of Attorney (FPOA) also known as a “property power of attorney” or a “durable power of attorney” is a document that gives a specified person power over your finances while you are living. The person creating the FPOA is the “principal” and the person who is given power over the principal’s finances is the “agent”.

When Does a Financial Power of Attorney Become Effective?

• Option 1 – Springing Financial Power of Attorney

You can either have your FPOA become effective upon a future date or immediately. Financial powers of attorney that become effective upon a future date are often termed “springing powers of attorney” and can be triggered either upon:

• An uncertain date, such as incapacitation, or
• a specific date that you know you may be unavailable.

In Wisconsin, incapacitation is the legal term for when a health care power of attorney becomes effective and it means that an individual is “unable to receive and evaluate information effectively or to communicate decisions to such an extent that the individual lacks the capacity to manage his or her health care decisions.”[1] Therefore, a financial power of attorney that becomes effective upon incapacitation essentially allows someone to handle your finances while you are in the hospital or experiencing a medical event that rises to the level of incapacitation.

Creating a FPOA to be effective upon a specific date that you know you will be unavailable for is a tool often used for real estate closings, allowing someone to sign on your behalf. These types of Financial Powers of Attorney are often called “limited” as they are intended for one specific purpose and terminate after that purpose has been fulfilled.

• Option 2 – Financial Power of Attorney That Becomes Effective Immediately

Alternatively, you can make your FPOA effective immediately. This is a great option for spouses who name each other as the other’s FPOA agent. It allows your spouse to handle a host of issues for you that can unexpectedly or expectedly arise. For example, your FPOA can give your spouse power to handle the filing of your income taxes for you if you were unable, or to even handle any government benefits you may be eligible for, such as Social Security and Medicare.

What Are the Pros and Cons of a Financial Power of Attorney?

The largest benefit of a FPOA is that having one in place can avoid court intervention. For example, suppose you end up in the hospital after a car accident and need some expensive surgeries, but to pay for the surgeries, you would benefit from leasing your home while you stay with a family member to recover. Having a FPOA in place would allow your agent to handle the leasing of your home for you (as long as your FPOA gives your agent the power to manage your real estate) and use the lease proceeds to continue paying your mortgage and avoid foreclosure.

Some other benefits of a FPOA include avoidance of delays in handling your finances (and the costly mistakes or interest charges that can follow) and overall convenience.

However, a FPOA can have some disadvantages if not thought out or misused. The largest risk of a FPOA is naming an agent who either mishandles or abuses your finances. While there are legal remedies available for a principal in these situations, beginning a court proceeding to pursue these remedies can be quite the headache. Another risk of a FPOA is failing to keep it up to date, which can result in a financial institution refusing to accept it.

While these risks exist, perhaps the biggest risk is failing to have a FPOA in place until its too late, as you can only have one done while you are of sound mind. The risk associated with naming an agent who mishandles or abuses your finances can be mitigated by choosing someone you trust and if that trust is ever extinguished, by revoking the document entirely.

The best practice when creating a FPOA is to have an attorney draft and explain the document to you. An attorney can cater the document to your specific situation and advise you on the best way to use the document. It is common practice for attorneys to offer FPOAs in conjunction with a will or trust plan, as your will or trust allows for the disbursement of your assets when you pass, whereas a FPOA allows for the flexibility of handling your assets while living.

[1] Wis. Stat. §155.01(8)

Schedule a consultation with Wynn at Law, LLC today to discuss the estate planning process

Whether you already have an estate plan in place in need of review, or would like to start from scratch, our attorneys are here to assist. 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.

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