Can I Go to Jail for not paying my Debt?

Many people that I talk to are tricked into paying money or making poor decisions because creditors threaten them. A popular practice among shady debt collectors is to lie to consumers by telling them they will go to jail or be arrested for not paying their debt. Payday loan creditors and debt collectors are especially aggressive with this tactic.

I often get calls from potential and active clients asking about threats they have received from debt collectors that “the sheriff will be sent out” or “you will be criminally charged” if you don’t pay your debt. In Wisconsin, such threats are empty and misleading. It is not a criminal offense to not pay your credit card or personal loan debt. Although a creditor has the right to sue and obtain a judgment against you for failing to pay a debt, such a proceeding is a civil matter rather than a criminal matter.

Additionally, there are some important aspects of civil suits to be aware of. First, once a creditor obtains a judgment against you, the next step for that creditor usually will be to try and garnish your income. The civil court will sometimes hold hearings or issue orders to determine whether you can be garnished or can have any of your property taken to pay the judgment. When a court issues an order requiring a response or appearance to disclose financial information, you can face consequences for not complying with orders of the court. In this situation, you are not being punished for failing to pay your debt. Rather, you are facing consequences for failing to respect a court order. By consequences, I am referring to the common practice of a court issuing a warrant. In this situation, an outstanding warrant could lead to your arrest, and usually an arrest will occur when/if you have an interaction with law enforcement, such as being pulled over for a traffic violation. The policy behind such action is to preserve the dignity of the court.

Thus, it is important to discuss your obligations with an experienced consumer attorney. An attorney can provide you with information about what you are required to respond to and what you are not required to respond to. Also, an attorney can give you information about the timelines involved in civil cases so you know how long you have to address your debt issues before facing garnishment warrants issued against you.

What does it mean when my debt is charged off?

When my clients receive information from creditors informing them that a particular debt has been “charged off,” they often what to know how this affects them.

First, a charge off is actually an accounting procedure. When you owe a debt to a creditor, that debt you owe them is an asset to that creditor. In other words, the creditor owns the right to collect money from you. That asset has value to the creditor, which affects the creditor’s business value and has tax implications. At a certain point, if you have not paid the debt for a long time that asset is less valuable because it is unlikely that the creditor will actually collect some or all of the money you owe them.

Second, although the creditor may not show the asset on its books, you still have a legal obligation to pay that creditor. As long as the statute of limitations* has not expired, that creditor still has the right to engage in collection procedures, including suing you or calling you. Also, the creditor can sell the right to collect from you to another creditor, usually a collection agency or law firm.

Third, if the creditor reports the debt as a loss to the IRS (in an effort to ease its tax burden) the IRS may consider the charged off debt income for you. It is important to discuss any notice you receive of such liability with an attorney or tax professional.

There are many things a consumer law attorney can do to help you address debt issues before and after a creditor “charges off” your debt. It is always best to have a consultation sooner rather than later, as you will often have many more options when you address debt problems early. Contact Consumer Advocates of Wisconsin for a free in person or phone consultation today!

*The “statute of limitation” is the law that sets the allowed amount of time a party has to act on a legal right or action. In Wisconsin, the statute of limitation to sue someone to collect a debt is 6 years.

How Can Bankruptcy Help with Student Loan Debt?

Student loan debt is the biggest financial issue our country faces today. Millions of Americans are graduating with insurmountable student loan debt. Often, those new graduates are unable to earn enough to manage both regular living expenses and student loan payments. To make matters worse, Congress has elected to make it nearly impossible to discharge student loan debt. Student loan borrowers have many options available to them to address this issue.

First, student loans held or guaranteed by the U.S. Department of Education are eligible for special repayment plans. Applying for an income based or income contingent repayment plan has many advantages. For one, your monthly student loan payments can be based on your income. Additionally, these repayment plans offer loan forgiveness after a certain period of repayment. However, it is important to be aware that forgiven student loan debt can be taxable income.

Second, sometimes graduates have other debt issues that makes it more difficult to dedicate income towards staying current on student loan payments. Chapter 7 bankruptcy can help in this situation because an individual who files Chapter 7 is eligible for a discharge. Debts such as credit cards, medical bills, utilities bills and personal loans are all usually dischargeable under Chapter 7. Sometimes wiping out this other troublesome debt will free up enough income to make it possible for you to remain current on your student loans.

Third, Chapter 13 repayment plans can offer a strategic bridge for new graduates. It is often the case that your student loans become due before you have had time to make professional progress. Chapter 13 plans can be from three to five years. Therefore, sometimes a Chapter 13 plan can give borrowers the breathing room they need to grow professionally. Additionally, there are several unique benefits to filing Chapter 13. First, while you are in your plan you will be protected from collection activity by your creditors including phone calls, wage garnishment, and bank account levies. Second, you will have one regular monthly payment that addresses most if not all of your debt. A Chapter 13 plan can give you the time to get back on track professionally and financially.

Finally, student loans can be discharged in bankruptcy in cases of “undue hardship.” Courts have applied the undue hardship in a way that makes it very difficult for student loan borrowers to prove their student loan debt is an undue hardship. However, some would say there is a trend towards a more expansive definition of undue hardship. Accordingly, depending on your circumstances, a bankruptcy discharge may be able to help you resolve your student loan debt.

For more information on how Consumer Advocates of Wisconsin can help you with you student loan debt, contact us today!

What is a Chapter 128?

A “Chapter 128,” the common nickname for Wis. Stat. Section 128.21 is a proceeding available to residents of Wisconsin to consolidate debts that they choose into a repayment plan that lasts up to three years.  There are many benefits to a Chapter 128.  First, creditors included in the repayment plan are “stayed” or prohibited from garnishing your wages or levying your bank account.  Second, a Chapter 128 proceeding allows you to pick and choose which debts you would like to include, a benefit you will not have if you file bankruptcy under Chapter 7 or Chapter 13.  If you are interested in learning more about filing a Chapter 128 proceeding, please contact Consumer Advocates of Wisconsin to discuss more details about this option.

Atty. Jonathan Mas Proudly Announces Launch of New Firm

On January 1, 2014, Consumer Advocates of Wisconsin, LLC, a law firm specializing in bankruptcy, foreclosure defense and consumer claims, launched in Milwaukee, WI.