Wisconsin Debt Relief: Your Guide to State Laws and Managing Debt

Home to the Green Bay Packers and a population of 5.8 million people, the state of Wisconsin is nestled in the Midwest and bordered by two Great Lakes. Like many others across the country, Wisconsin residents are feeling the burden of debt in various forms. When bills pile up and the phone keeps ringing, it can be hard to see the light at the end of the tunnel.

For residents who need help repaying debt, Wisconsin has debt relief organizations available that offer financial education and debt relief services. To protect consumers, Wisconsin prohibits bill collectors from harassing consumers and sets guidelines for payday lending.

In this guide, we discuss your rights when debt collectors call, debt relief programs available, payday lending laws, tips for tackling debt and how to file for bankruptcy as a last resort.

• Debt in Wisconsin: At a glance
• Debt collection in Wisconsin
• Wisconsin debt relief programs
• Payday lending laws in Wisconsin
• Tips to tackle debt in Wisconsin
• Filing for bankruptcy in Wisconsin

Debt in Wisconsin: At a glance

Debt collection in Wisconsin

Consumers across the country are protected by the Fair Debt Collection Practices Act (FDCPA) which outlines what companies can and can’t do when attempting to collect money from you.

Wisconsin also has its own Wisconsin Consumer Act to regulate how debt collection is handled in the state. Debt collectors in Wisconsin cannot:

• Call you at unusual hours
• Call your employer about unpaid debt unless there’s a final judgment or it’s only to verify your employment or salary
• Send you a letter made to look like it’s from the government or an attorney when it’s not
• Threaten you or cause you physical harm
• Threaten you with criminal prosecution
• Threaten to tell people personal information that may damage your reputation

If a debt collector violates the law when attempting to collect from you, you may be entitled to damages due to physical, mental and emotional anguish. You may also be able to take back possession of property that you surrendered to a collector if it’s determined they broke the law when they collected it.

Both merchants collecting money for themselves and third-party collectors fall under the “debt collector” umbrella in Wisconsin. So if a local shop owner or business owner is contacting you relentlessly, they may be breaking Wisconsin law and you may be able to sue for damages.

Responding to collection letters

Let’s say you get a collection letter in the mail — what should you do next?

Verify the debt. Before doing anything, you need to make sure that the debt collector sent the notice to the right person. Submit a debt verification letter within 30 days of receiving the collection notice. Check your name, how much you owe and the original creditor.

Check the date. If it’s very old debt past the statute of limitations, do not make payment right away. For Wisconsin, the statute of limitations on debt is six years (more on what this means below). Speak with an attorney to discuss the next step if you’re past the statute.

Submit a dispute. If the debt isn’t yours or the collections letter has incorrect information, send a certified letter with a dispute to the collections agency. Keep a copy for your records.

Negotiate a settlement. Sometimes creditors will agree to settle for an amount that’s less than what you owe. You may have to pay the settlement through installments or a lump sum. There are settlement companies that can try to negotiate these arrangements on your behalf, but they charge a fee. It doesn’t hurt to at least try negotiating a payment plan or settlement yourself for free before hiring help.

File a complaint if you’re getting harrassed. The rules are clear for how debt collectors can contact you. They cannot threaten you and they cannot hound you all hours of the day. If debt collectors are using pressure tactics that make you feel uncomfortable, report them to Wisconsin’s attorney general’s office or the CFPB online or by phone at 855-411-CFPB (2372).

Understanding Wisconsin’s statute of limitations

A debt’s statute of limitations is the amount of time that someone has to sue you for committing an offense. After the statute of limitations for debt expires, you still technically owe the money you borrowed and creditors may still contact you for the cash, but you can no longer be taken to court over the balance.

The statute of limitations can vary from state to state, and it’s very important to know what statute of limitations applies to your outstanding debt. Making a payment on what’s called “time-barred” debt that’s past the statute of limitations can reactivate the account and restart the statute of limitations timer from the beginning.

Collectors may try to coerce you into making a payment even if it’s a small amount to restart the statute of limitations time frame. Contact a lawyer who specializes in debt if you’re not sure whether you should make a payment on an old debt. The statutes of limitations for different forms of debt in Wisconsin are listed in the table below.

Wisconsin debt relief programs

Both state- and national-based debt relief organizations can help you with financial education and debt counseling when you need it. Locally, there’s the FISC, a non-profit credit counseling program that offers bankruptcy, housing and debt counseling.

The Consumer Credit Counseling Service of Greater Milwaukee provides education and personal financial assessments to support families in Wisconsin through multiple offices in the Milwaukee area.

Nationally, there’s the National Foundation for Credit Counseling (NFCC), which oversees member agencies across the country. Through the NFCC website, you can find accredited counselors near you.

Be careful of for-profit companies promising to get you out of debt fast. These companies could be nothing but a scam. Red flags to watch out for are companies that are pushy, collect money upfront and are unclear about the total costs of working with them.

Payday lending laws in Wisconsin

Wisconsin allows payday lending and, in recent years, has made headlines for being a state with one of the highest average interest rates on payday loans. As of 2016, Wisconsin payday loans have an average interest rate of 574%, according to the Pew Charitable Trusts.

A payday loan is a short-term loan designed to help you make ends meet from one paycheck to another. Payday lenders offer you a loan of a small sum for a fee that you’re supposed to pay back the next time you get paid. If you can’t pay back the money on your next payday, you may be able to pay a fee to “roll over” the loan. Repeatedly rolling payday loans over and racking up fees can lead to a vicious debt cycle that’s difficult to break.

There’s no limit to the amount of interest you can pay on a payday loan in Wisconsin before the loan reaches the maturity date. But Wisconsin does set a limit for how much you’re allowed to pay for principal, fees and interest combined on one loan. A lender cannot offer you a loan that results in a balance of $1,500 or 35% of your gross monthly income.

Wisconsin payday loan details:

• Maximum loan amount: $1,500 or 35% of the borrowers gross monthly income, whichever is less.
• Maximum loan term: 90 days
• Finance charges: No interest rate limit before the loan reaches maturity; up to 2.75% per month after the loan reaches maturity; non-sufficient funds charge fee cannot exceed $15

A payday loan may be easy to access at a local shopping center storefront, but we don’t recommend using one when you need money fast. Rolling over payday loans continually can get you in a deeper financial hole, ultimately doing more harm than good.

Tips to tackle debt in Wisconsin

Wisconsin residents trying to tackle debt may benefit from restructuring debt with a consolidation or refinance. Working closely with a credit counselor may be worthwhile as well.

Consolidate your debt

Debt consolidation is when you take out another form of debt to pay off your existing debts. Say you have two credit cards and one unpaid dental bill from a root canal. You take out a loan to pay off the balances, and then you pay that one loan back in installments.

Consolidation may make your life easier because you no longer need to worry about making multiple separate payments. Plus you may be able to find a new loan with a lower interest rate than your existing debt, which can save you money and help you repay debt faster.

There are two common products used for debt consolidation:

Debt consolidation loans: Debt consolidation loans are often unsecured personal loan products. Many lenders let you apply for consolidation loans online and you may get funding fairly quickly to pay off your other debts. Debt consolidation loans can be used for credit cards, medical bills, personal loans and other consumer debt.

Home equity loans: Homeowners who have sufficient home equity may be able to use a home equity loan for debt consolidation. Usually, you’re able to borrow up to 85% of your home equity. The collateral (i.e. your home) that’s backing the loan may help you qualify for a more competitive interest rate than you would get on unsecured debt products.

Debt consolidation pros

• Easier payments. You will no longer have to remember to pay multiple different creditors. All of your debt is combined into one balance that you owe one lender.
• Fixed interest and payments. A debt consolidation loan can get you out of the minimum credit card payment trap because it can offer a fixed payment and a fixed pay off schedule.
• Many options. The online personal loan lending landscape has made it simple to shop for loans and fill out applications online. Funding can happen quickly, and money goes straight into your bank account to pay off your debt.

Debt consolidation cons

• Credit matters when applying. Loans with the best interest rates and fees are given to borrowers with the best credit. Having high debt balances could mean that your credit score has taken a beating. Not to worry though — there are some personal loans for borrowers with bad credit.
• The fees. Consolidation loans may have application and origination fees. Shop with multiple lenders to compare fees and interest to find the best product.
• It won’t fix all of your problems. A debt consolidation loan may lower your interest rate and can make repayment more manageable, but it’s not going to fix spending habits. You need to address your budget. Otherwise, you could find yourself racking up more debt on your credit cards on top of the consolidation loan opening up a whole new can of worms.

Refinance

A loan refinance may be the right move if you’re stuck with a mortgage, auto loan or student loan that has less-than-great terms. A refinance is when you take out a new loan with better terms to replace an old loan. If you’ve built good credit since the last time you borrowed money, you may be rewarded with a better interest rate on a refinance.

Mortgage. Refinancing a mortgage can do a few things: It can lower your interest rate and it can turn an adjustable-rate mortgage into a fixed-rate mortgage to stabilize your payments. It can also extend your payment schedule over a longer term to lower your monthly payment.

Auto loan. If you have auto loan financing that’s not so great, you may be able to refinance to a better loan now with a lower overall cost.

Student loans. Student loans can be a little tricky if you have both private and federal student loans. Federal student loans have certain protections like income-driven repayment that you’ll lose if you refinance them with a private lender. Make sure you understand the implications of losing federal loan benefits (such as losing eligibility for forgiveness programs) before getting rid of them. Private loans, on the other hand, are ones you may want to refinance if you can find a better deal with another lender.

Use a balance transfer card

A credit card balance card is one that’s offering a zero- or low-interest special for a certain timeframe. Usually, 0% annual percentage rate (APR) specials last for 12 to 21 months. After the introductory period ends, the interest rate jumps up to the standard rate.

The strategy here is to use the balance transfer card to pay off your existing credit card debt. Then you pay off the new balance transfer card before the low-interest period expires. It’s important that you pay off the debt within this time period to make the balance transfer worthwhile.

Credit cards that do offer a 0% APR on balance transfers typically require at least a 700 credit score to get approved, so this option may not be available to borrowers with less-than-stellar credit. Balance transfer cards may charge a fee, usually 3%, to transfer your balance.

Sign up for a debt management plan

If you would like some guidance during your debt repayment journey, signing up to work with a credit counseling service may be worthwhile. Credit counseling non-profits offer different financial literacy services and debt management plans.

Under a debt management plan, a counselor contacts your creditors to negotiate lower interest and fees on your debt. Afterward, you make one payment to the counseling agency and it’s dispersed to pay all of your creditors. If you’re tired of dealing with bill collectors, this could give you a welcomed break from debt collector calls or notices. Debt management plans typically have an enrollment fee and monthly fee.

Filing for bankruptcy in Wisconsin

Bankruptcy can offer a fresh start if you’re unable to qualify for refinance or consolidation products and you don’t have enough funds to repay debt through a debt management plan.

There are two forms of bankruptcy most used by individuals: Chapter 7 and Chapter 13.

Chapter 7 bankruptcy. Chapter 7 is the full liquidation form of bankruptcy where your all assets (except exempt property) are sold to repay your creditors. In Wisconsin, exempt property may include your car and personal belongings. Speak with an attorney to find out what property you own that qualifies for exemption. In order to file Chapter 7, you need to pass what’s called a “means test” to determine whether you have enough disposable income to pay some of your debt. If you do have a bit of disposable income, you may have to file Chapter 13 instead.

Chapter 13 bankruptcy. Chapter 13 is the form of bankruptcy where you, your attorney and your creditors come up with a payment arrangement where you pay a portion of your debt. The repayment term is three or five years. Filing Chapter 13 may help you save your home from foreclosure if you add back payments into the payment plan. Certain unpaid debt left over after the payment term may be discharged.

Not sure if bankruptcy is right for you? Here are a few pros and cons:

Bankruptcy pros

• It’s a second chance. Chapter 7 bankruptcy can help you get a fresh start since you’re effectively “cleaning house” to settle your debts. Chapter 13 isn’t a full liquidation of your assets, but it does organize a payment plan for you and remaining debt may be forgiven.
• The impact on your credit won’t last forever. Bankruptcy will appear on your credit report, but it doesn’t mean you’re sentenced to a lifetime of bad credit. A LendingTree study found that 65% of people with a bankruptcy on their credit report have a credit score of 640 or better after two years.

Bankruptcy disadvantages

• It does stay on your credit report for a while. Although a bankruptcy may not destroy your credit forever, it is still going to be on your record. Chapter 7 typically stays on your credit report for up to 10 years while Chapter 13 sticks around for up to seven years.
• Bankruptcy is a process and it’s not free. Filing for bankruptcy involves plenty of paperwork, meetings and court proceedings. You’re required to take pre-bankruptcy credit counseling and pre-discharge debt counseling as well. There are also court and attorney fees involved.

Filing for bankruptcy isn’t a decision you should take lightly. Consult with an attorney to understand your options.

Wisconsin bankruptcy resources and courts:

• Wisconsin State Law Library
• U.S. Bankruptcy Court Eastern District of Wisconsin
• U.S. Bankruptcy Court Western District of Wisconsin

The bottom line

Locally and nationally, there are places to turn if you need help. Leaving bills unopened now can lead to a more difficult situation later. Know that you have a right to report creditors for harassing behavior. Contact a debt relief nonprofit for education and resources when you need support. Look into options for consolidating or refinancing debt if you need to restructure or lower your interest rates. Acting fast can help you stop debt from spiraling out of control.

The information in this article is accurate as of the date of publishing.