People who find themselves in debt and unable to pay their bills generally have two options: declaring bankruptcy or choosing debt settlement. Both choices will stop creditors from harassing you, but they provide very different outcomes. Knowing the pros and cons of bankruptcy vs. debt settlement and discussing your options with an experienced bankruptcy attorney can help you make the decision that is best for your circumstances.

Bankruptcy vs. Debt Settlement

Are debts piling up, but your bank balance keeps shrinking? You have options. The two most common paths forward are Chapter 7 bankruptcy and debt settlement. Each approach has benefits and drawbacks, and understanding the differences between them is critical to choosing the best path forward.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, known as “liquidation bankruptcy,” allows individuals and businesses to discharge their debt under federal law. You may be required to sell some of your property to repay creditors, but Wisconsin bankruptcy exemptions allow most debtors to retain many essential assets.

When you file for Chapter 7 bankruptcy, you are asking the federal bankruptcy court to eliminate qualifying debts. Most unsecured debts are covered, including:

• Credit card balances
• Medical bills
• Personal loans
• Utility bills
• Old income tax debt
• Certain business debts

Debts that cannot be discharged in Chapter 7 bankruptcy include:

• Recent income taxes
• Student loans
• Child support and alimony payments
• Debts from fraud or willful injury
• Secured debt (unless you surrender the collateral)

Debt Settlement

Debt settlement involves negotiating with creditors to resolve your debts for less than what you owe. The process primarily applies to unsecured debt, such as credit cards and medical bills. It is discreet and confidential, so your employer will not know you consolidated your debt. However, debt consolidation generally will appear on your credit report.

Most debt settlement programs require that you stop payments before you begin settlement negotiations, which could damage your credit or trigger lawsuits or collections actions. Creditors are not required to agree to the proposed terms of a debt settlement, and they may not agree to it at all.

Wisconsin Chapter 128: A State Law Alternative

Wisconsin offers a unique alternative to debt settlement under Chapter 128. This is a state-level process that is distinct from federal bankruptcy. It allows consumers to customize their approach to restructuring debt payments by selecting the unsecured debt that makes the most sense in their situation. Chapter 128 debt settlement is commonly used to consolidate debt from medical bills, credit cards, civil judgments, payday loans, or personal loans. It allows consumers to pay creditors a percentage of what is owed over an extended period of time.

Should I Choose Bankruptcy or Debt Settlement?

Choosing between bankruptcy and debt settlement depends on your personal situation. Choosing the best option for you requires evaluating the type of debt you owe, your income, and your long-term goals. Bankruptcy will stop current and future collection proceedings and give you a fresh start. You will not be liable for any previous debts or liabilities that were included in your bankruptcy filing. You are unlikely to lose most personal assets due to state and federal bankruptcy exemptions. However, bankruptcy will become part of the public record, your credit rating will be affected for the next 7 to 10 years, and you will be unable to get credit for the first 1 to 2 years after filing. You may remain liable for certain exempt debt, such as student loans, some income taxes, child support, and alimony.

Debt settlement is often the best option for discharging unsecured debt like credit card balances, medical bills, and personal loans. It does not stop lawsuits or wage garnishment, but it can protect you from having bankruptcy appear in the public record. It allows you to protect certain non-exempt property and other assets. Debt settlement can be particularly attractive for individuals who need to maintain certain professional licenses or security clearances.

Muter Law Office Can Help You Choose Between Bankruptcy and Debt Settlement

Being in severe debt can be stressful, but know that you are not alone. Bankruptcy and debt settlement both offer strategic legal protection and a fresh start. Both options have advantages and drawbacks. The bankruptcy and debt settlement attorneys at Muter Law Office advise and represent clients in various bankruptcy and debt relief legal processes and can help you decide which option is best for your situation.

Contact Muter Law Office Today

Muter Law Office offers practical, cost-effective solutions to help individuals struggling with debt. Contact the Muter Law Office today to schedule a free and confidential appointment to discuss your situation and how we can assist you.