Management vs Bankruptcy

Managment vs. Bankruptcy

     Deciding between a debt management plan versus bankruptcy is very difficult because there are many factors to consider which are often dictated by external circumstances. In theory, bankruptcy is to be used by people who are absolutely unable to repay their debts. In a case where a person has fallen behind with creditors, but who is making a reasonable income, bankruptcy may not be the option to take.

     The differences between management (consolidation) and bankruptcy:

• On a debt management plan, you repay creditors 100 percent of what is owed with the exception of interest concessions the companies may or may not make. Under Chapter 13 bankruptcy, you pay so many cents on the dollar. Under Chapter 7 your debts are forgiven (with some exceptions).

• On a debt management plan, you do not lose any assets. Under bankruptcy you may.

• On a debt management plan, many creditors will consider granting a person credit once they graduate from the program. With bankruptcy, you may be able to get credit but it may be much more difficult and you could pay much higher interest rates.

• On a debt management plan, creditors may report your accounts as "slow pay" or "not paying as agreed". Some creditors will actually bring the accounts current and a person's credit looks better than it did before. The information reported by creditors stays on your credit report for 7 years. With bankruptcy, it shows as a bankruptcy and stays on your report for 10 years.

• There are things a debt management plan can help people with that bankruptcy will not (i.e. loans from family members and more).

• Debt management plans are designed to be an "alternative to bankruptcy" for those who have some ability to pay. Bankruptcy was not designed to be an "alternative to repayment."

     There is ongoing legislation to severely limit the ability to file bankruptcy in cases where people have the ability to pay. Bankruptcy should always be a last resort.