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Chapter 13 Bankruptcy Vs. A Debt Management Plan

Debt Management Concept
If you struggle with debt, you probably want to find a solution that will help you pay off debt in a manageable way. Two such options are Chapter 13 bankruptcy and a debt management plan.

A Chapter 13 bankruptcy is similar to a debt management plan in many ways. However, a Chapter 13 bankruptcy does have some advantages that a debt management plan does not. Before you make any decisions about which option is best for your situation, read on.

What is the Difference Between Chapter 13 Bankruptcy and a Debt Management Plan?

A Chapter 13 bankruptcy consolidates all of your debts into a single repayment plan. This plan is designed to be repayable at your current wage without putting you through serious financial hardship. A Chapter 13 bankruptcy will usually pay off your debts within a few years.

Once you have completed your plan, the rest of your debt (except for student loans) will go away. Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy lets you keep your assets.

A debt management plan is a plan that a third-party agency negotiates with your current creditors. The agency creates a structured repayment plan with each individual creditor. You then pay the agency and the agency pays the others out.

What Are the Benefits of a Chapter 13 Bankruptcy?

When you start the process of a Chapter 13 bankruptcy, creditors can no longer continue collection actions against you. This includes any repossessions, wage garnishments, or foreclosures that could occur. At the end of the bankruptcy process, the creditors will need to discharge your remaining debts and cannot go after you for those debts. 

A Chapter 13 bankruptcy usually has lower monthly payments than a debt management program. This is because a debt management program requires that you pay back all of your debt, rather than only how much you can afford.

A debt management program is also going to include fees every month and may take longer to repay your debts. Further, a debt management plan requires that your creditors agree to the plan, which is not a guarantee the way that it is under a Chapter 13 Bankruptcy.

What Are the Benefits of a Debt Management Plan?

You do not have to close your credit accounts and you do not have to include all of your debts, just the debts that you currently struggle with. You will not have a bankruptcy on your record, and your credit score overall will likely go down temporarily but then begin to go up quicker.

At the same time, a debt management plan also opens the door for getting into further debt, as you will have the option of opening new credit accounts.

Should You Choose a Chapter 13 Bankruptcy or a Debt Management Plan?

In general, a debt management plan is suitable for less serious situations. If you currently struggle with debt but feel that you have a manageable amount of debt, a DMP can help you get back on track. This will not stop adverse actions against you and will require that you pay back all of your debt (and over a fairly long period of time), but this plan will eventually resolve your debts.

Chapter 13 bankruptcy is your best option if you feel as though your debt is overwhelming and you need help. When you are done with your bankruptcy period, you will be free and clear of nearly all of your debts and able to start fresh.

Are you wondering whether bankruptcy might be right for you? You may need a professional opinion, as everyone's financial situations and financial goals are unique. For more information about the process of bankruptcy, debt settlement, and debt management, contact the bankruptcy expert Attorney Patrick T. Smith.

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