Unsecured Debt Relief: Your Key to Financial Freedom
Curious about what debts can be wiped away through bankruptcy in Wisconsin? Bankruptcy can be a lifeline for those drowning in debt, but understanding which debts it eliminates is crucial. Unsecured debts are those not tied to collateral, like credit card balances and medical bills.
The laws regarding bankruptcy and debt relief can be complex, so seeking guidance from a legal professional is wise. Explore unsecured debt examples to gain a clearer understanding of what bankruptcy can and cannot erase.
Quick Summary
- Bankruptcy in Wisconsin follows federal laws that allow you to start fresh by undoing agreements with creditors. Wisconsin laws are important because they decide which property you can keep during bankruptcy.
- An unsecured debt is not tied to your property, so creditors can’t take anything from you without suing first. In contrast, secured debts are tied to property, which can be taken if payments are missed.
- Unsecured debts are riskier for lenders because they have no collateral. This means they can charge higher interest rates. Your credit history is crucial when applying for unsecured loans, as it affects your ability to qualify.
- Common unsecured debts include credit card charges, student loans, utility bills, medical bills, personal loans without collateral, court judgments not enforced, overdue income taxes, and unpaid rent.
- Not paying your credit card bill or other unsecured debts won’t lead to your property being taken away, but it can hurt your credit score and result in late fees. If you continue to neglect payments or have too much debt, your debt may be sent to a collection agency, making it hard to get new credit cards or loans, and you could face lawsuits or wage garnishment.
- When you have unsecured debt, you can either pay it off or file for bankruptcy to eliminate it.
How Does Bankruptcy Work in Wisconsin?
Filing for bankruptcy in Wisconsin is similar to filing in other states. Bankruptcy is governed by federal law, not state law, and it involves undoing the agreements between you and your creditors. This process allows you to start anew.
However, Wisconsin’s laws play a crucial role because they dictate which property you can retain during your bankruptcy proceedings.
What is an Unsecured Debt?
An unsecured debt is a debt that doesn’t have any specific property, like your house or car, tied to it for payment. If you don’t pay this debt, the creditor can’t take any of your property without suing you first and getting a court judgment.
On the other hand, a secured debt has a piece of property serving as collateral. If you fail to make payments, the creditor can take that property.
How Does Unsecured Debt Work?
For lenders, unsecured debt is riskier than secured debt. They charge higher interest rates because they have little protection if the borrower fails to repay, especially through bankruptcy. That’s why it’s often harder to get a new loan if you’ve filed for bankruptcy before.
When you use unsecured debt, like making charges on a credit card, lenders report your activity to credit bureaus. Being responsible can improve your credit score, but late payments and loan defaults can lower it and show up as negative marks on your credit report.
Therefore, your credit history plays a significant role in whether you can qualify for unsecured loans and credit cards.
What Are the Common Unsecured Debt Examples?
Unlike car loans or mortgages secured by your property, unsecured debts rely solely on your promise to repay. Here are some common examples you might encounter:
- Credit card debt: This is the most frequent type of unsecured debt, accumulating interest charges if not paid in full each month. This includes charges from department stores and other credit cards.
- Medical bills: Unexpected medical emergencies can lead to substantial unsecured medical debt.
- Personal loans: These loans are unsecured and often carry higher interest rates due to the lender’s increased risk.
- Student loans: While some student loans are government-backed and may have different rules, private student loans are typically unsecured.
- Utilities: Unpaid bills for phone, electricity, and other utilities can become unsecured debt.
- Unpaid rent: Falling behind on rent creates unsecured debt for the owed amount.
Secured vs. Unsecured? If a loan requires using your car, house, or other asset as collateral in case of default, it’s secured debt. Otherwise, it’s likely unsecured.
What Will Happen If I’m Not Paying My Unsecured Debt?
Not paying your credit card bill or other unsecured debts won’t lead to your property being taken away. However, it can hurt your credit score and result in late fees. If you continue to neglect payments or have too much debt, your debt may be sent to a collection agency.
This can make it difficult to get new credit cards or loans. You could also face a lawsuit, a property lien, or wage garnishment. In severe situations, a court judgment may require you to use your personal assets to repay an unsecured loan.
How Unsecured Creditors Can Get a Court Judgment?
To get a judgment, a creditor must file a complaint in state or federal court and give you a copy, which begins the lawsuit. You can respond to the complaint and challenge the lawsuit before a judgment is made.
After a creditor gets a court judgment against you, they can start collecting what you owe. State law mostly controls how this collection process works. A judgment creditor might do things like:
- Question you under oath to learn about your income, debts, and belongings
- Take money directly from your paychecks and bank accounts
- Seize and sell your real estate and personal possessions
State and federal laws protect certain real and personal property from being taken by creditors. Creditors cannot take these assets if they are covered by exemptions. Exemptions can protect things like the equity in your home, furniture, pension plans, and other property from being collected by your creditors.
How Can I Get Rid of My Unsecured Debt?
When you have unsecured debt, you can either pay it off or file for bankruptcy to eliminate the obligation. Here’s what you need to understand about each option:
1. Repaying Your Debts
Review Your Budget
Budgeting to pay off debt means using your income and debt payoff strategies, like the debt snowball or debt avalanche method, to slowly reduce your unpaid balances over time.
Consider a Debt Consolidation Loan
If you’re finding it hard to keep track of many balances and due dates, you might consider getting a debt consolidation loan. This loan combines several debts into one easier-to-manage monthly payment.
Enroll in Credit Counseling
If you think you need help with your debt, you can consider credit counseling. Certified counselors can teach you about managing money and help you negotiate a plan with your creditors. The National Foundation for Credit Counseling (NFCC) has a list of trusted providers you can contact for help.
Get Assistance From a Company That Helps With Debt
Debt relief, also called debt settlement, means hiring a company to talk to your creditors and agree on paying less than what you owe. These companies can help you negotiate lower payments or interest rates. But watch out for companies that aren’t trustworthy and most will charge fees, so make sure to research them well if you’re considering this option.
Seek Debt Forgiveness
Debt forgiveness means asking a lender to forgive some or all of your debts. The kind of forgiveness programs you can use depends on the type of debt you want to get rid of. Many lenders have special plans for people facing financial difficulties, so it’s worth looking into if your debt is becoming too much to handle.
2. File for Bankruptcy
If your debts are overwhelming and you can’t manage them, you can think about filing for bankruptcy. Bankruptcy is a way to have most of your debt forgiven, but it’s best to think of it as a final option.
It can badly affect your credit score and stay on your credit report for up to 10 years, making it hard to get new loans in the future. There are two types of bankruptcy to think about, depending on your financial situation:
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as “liquidation bankruptcy” because some creditors might ask you to sell your assets to pay off your debts. However, after the process is finished, most of your debts will be forgiven.
But remember, some debts like tax liens and child support cannot be forgiven. This type of bankruptcy stays on your credit report for 10 years.
Chapter 13 Bankruptcy
On the other hand, Chapter 13 bankruptcy lets you hold onto your belongings, but you must stick to a payment plan for several years before the rest of your debt is forgiven. This type of bankruptcy stays on your credit report for seven years in total.
Trusted Legal Guidance for a Brighter Financial Future
Bankruptcy provides a fresh start by eliminating unsecured debts and offering relief from financial burdens. Understanding dischargeable debts is crucial for informed decision-making.
Miller & Miller Law, LLC navigates Wisconsin bankruptcy law with ease thanks to our qualified legal experience. Our legal team protects your rights and helps you achieve a brighter financial future. If you’re struggling with unsecured debts and considering bankruptcy, contact us for a free case evaluation.
Take the first step towards financial freedom with our legal team by your side. We can also assist you with Tax Debt Resolution, Debt Negotiation, and Workers’ Compensation.
