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Debt Management Plans

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For those facing hard financial times, filing bankruptcy may be only one option. If your financial problems stem from too much debt or your inability to repay your debts, a debt management plan may provide relief.

A debt management plan is a process to pay down outstanding debts, similar to a Chapter 13 bankruptcy. However, instead of working with a bankruptcy court trustee, a debt management plan is done through a credit counseling agency.

One major difference between a Debt Management Plan and chapter 13 bankruptcy is the amount of debt you must pay. In a debt management plan, you must repay 100% of your outstanding debts. In a Chapter 13 bankruptcy, you might only have to repay a portion of your debt.

How a Debt Management Plan Works

A debt management plan is an arrangement between you, your creditors and a credit counseling organization. It typically lasts between 3 and 5 years.

Each month, you deposit money with the credit counseling organization, which uses your deposits to pay your unsecured debts, like credit card bills, student loans, and medical bills.

Your creditors may agree to lower your interest rates and waive certain fees, but check with all your creditors to be sure that they offer the concessions that a credit counseling organization describes to you.

A successful debt management plan requires you to make regular, timely payments, and could take 48 months or longer to complete. Ask the credit counselor to estimate how long it will take for you to complete the plan.

You also may have to agree not to apply for — or use — any additional credit while you’re participating in the plan.

Debt Management and Bankruptcy

For many debtors, a Debt Management Plan is a viable alternative to bankruptcy. However, depending on a number of circumstances, it may not necessarily be the best option.

As part of the new bankruptcy law introduced in 2005, all debtors filing for bankruptcy must first take a Credit Counseling course. This course will explain the options available, including Debt Management Programs, to those facing serious debt.

Both Debt Management Plans and personal bankruptcy will appear on a person's credit report, and lenders may view both seriously.

Like bankruptcy, a Debt Management Plan should be considered carefully. To get more information about debt management and the financial options available to you, you can connect with a local bankruptcy attorney.

Simply fill out our free case evaluation form or call 877-833-2410 to connect with an attorney today, receive a free case evaluation from an attorney and discuss your debt solutions.

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