Debt Management Programs Versus Bankruptcy
Anyone struggling to eliminate debt has likely wondered about debt management programs versus bankruptcy, and which option would make the most financial sense.
Everyone's individual circumstances are different, but there are a few basics that might be useful to the decision-making process.
How Debt Management Programs Work
Unlike bankruptcy protections, debt management programs aren't structured by federal law, so each program may take a slightly different approach.
Common debt management programs include:
- Credit counseling: This involves visiting a credit counseling center for help devising a repayment schedule and budgetary plan for debts. Most experts recommend working with a non-profit credit counseling service that has been nationally accredited for best results.
- Debt settlement: This option requires working with a debt settlement firm that will negotiate a modified repayment plan with a person's creditors. While debt settlement can be effective at eliminating debt, it's important to note that not all debt settlers are created equal. Every year, the Federal Trade Commission receives many complaints about debt settlement firms that do little more than take consumers' money and ignore their financial woes.
- Debt negotiation: To negotiate debts with creditors, a person needs only a telephone, a thorough knowledge of her debts and income, and the ability to bargain. This option essentially works like debt settlement except that a person does all the negotiation work herself.
How Bankruptcy Works
The bankruptcy option varies from debt management in a number of ways.
- The automatic stay: In most cases, as soon as a person files his bankruptcy case with the court, this legal protection prevents creditors from taking collection of any kind (including foreclosure, repossession, phone calls, garnishment, mailings and more). The automatic stay remains effective for the entire case.
- Standard fees: Because it's regulated by federal laws, fees for filing bankruptcy are, in most cases, identical everywhere in the country.
- Debt discharge: In Chapter 7 bankruptcy, nearly all filers are legally excused from ever paying on eligible debts.
- Repayment plan: In Chapter 13 bankruptcy, filers usually get a period of three to five years to catch up on debts. In that time, creditors are prohibited from attempting to collect on debts.
Which to Choose: Debt Management Programs or Bankruptcy?
If you'd like a professional opinion on whether a debt management program or a bankruptcy filing would work best for you, take advantage of this opportunity to connect with a bankruptcy lawyer in your area for a free consultation.