The following summary was written by Robert Christopher and is being reproduced by permission of Mr. Christopher. The views and opinions expressed in his article are those of the author and do not necessarily reflect the official opinion of JVS Law. The information and/or opinions in Mr. Christopher's summary are based on sources believed to be reliable but no representation, expressed or implied, is made as to its accuracy, completeness or correctness.
Chapter 13 bankruptcy vs debt management - Which outperforms the other?
If you've racked up piles of debt on your credit cards, you must be looking for an option to delete your financial worries. When it comes to choosing betweendebt management programs and bankruptcy, this may be a difficult choice. Nowadays, due to lack of funds among the Americans, it is becoming increasingly difficult to deal with high interest credit cards, car loan payments and medical bills. When people are running from shortage of cash, what steps are they supposed to take in order to forget their debt woes? Should they opt for debt management programs or should they file bankruptcy? Debt management is more like debt consolidation through which you can combine your debts into single monthly payments butChapter 13 is not much different from this. Read on the concerns of this article in order to know which option suits your financial conditions better.
What is Chapter 13 bankruptcy and what are the benefits that you may reap?
A Chapter 13 bankruptcy is nothing different from debt consolidation or debt management as this also offers consolidation of debts into a single affordable monthly payment plan. If you opt for Chapter 13 bankruptcy, you can easily pay off unsecured credit card debts, medical bills over a set period of time and let the rest of the debt amount be waived off by the time the plan is completed. While you make the payments on the outstanding debt, you may keep the collateral of your secured loans. The biggest benefit that you may reap if you choose to file Chapter 13 bankruptcy is that all the debts will be discharged once the plan is completed. You no longer remain legally obligated to pay back the debt amount and therefore this gives you a fresh new start. You may also get an automatic stay, where all the collection agency calls may stop and a legally binding agreement according to which the creditors can't seek payments on those debts that have been discharged.
Getting help from a debt management company
On the other hand, when you get help from a debt management company, the credit counselor will review your present financial state in order to check whether or not you can repay your debts on your own. If they see that you can't get out of debt with any amount of budgeting and personal finance management techniques, they will enroll you into a DMP or a debt management program through which you can repay your debts in single and affordable monthly payments throughout a stipulated period of time. You'll still be able to use the lines of credit to pay down debt, the late fees and the over-the-limit fees may even stop, you may avoid filing a bankruptcy and this payment plan won't adversely affect your credit score.
When debt management program is compared to bankruptcy, the monthly payments are usually higher in the former option. While you're repaying a portion of the debt through Chapter 13 bankruptcy, you have to repay the entire debt amount through debt management. You may even take a longer period of time to repay your debt. Therefore, when you're oscillating between debt management and bankruptcy, choose the above mentioned flaws and benefits so that you're able to take an informed and a measured decision.
While Mr. Christopher's summary is accurate, I want to highlight and stress the benefits of a Chapter 13 Bankruptcy. First and foremost, you get the protection of the automatic stay, all collections, lawsuits, telephone calls, MUST stop. Further, you get to pay off your unsecured debt for cents on the dollar without any interest or penalties. While some debt settlement programs may be able to reduce or eliminate your late charges on interest rates, not all can or will. Further, you may be able to "cram down" a secured car loan so that all you are paying back is what your vehicle is worth NOT what the loan amount is for. Debt settlement programs can't do this.
Anyone who is thinking about debt settlement programs need to proceed with caution! While there are some reputable debt settlement companies out there, there are also a lot of disreputable companies inducing unwary debtors to use their services. I have filed many bankruptcy cases where the debtor first tried to use a debt settlement company. All the company did for them is take a large upfront fee, failed to consolidate their debt, and destroyed, what was already a low credit score.
Also worth mentioning, the companies who accept this legally binding agreements to consolidate your debt, there is nothing to make them honor this agreement except a civil lawsuit, a lawsuit which most average persons can't afford. So if your credit card companies stop honoring the debt settlement agreement and you can't afford to sue them, you options are limited. Whereas, if you file bankruptcy you have many protections under federal law, protections that cost less than filing a lawsuit in state court for breach of contract.
Depending on your "disposable income" and value of your "unexempt" property, bankruptcy may or may not be a good option for you. However you should consult with an experienced bankruptcy attorney to see what option will work best for your situation. Every situation is different and bankruptcy is not the right choice for everyone.
The Law Offices of James V. Sansone assists individuals file for bankruptcy protection under the United States Bankruptcy Code. We are located in Santa Rosa, California and serve clients throughout Sonoma County, Mendocino County, and Lake County, including Santa Rosa, Petaluma, Cotati, Rohnert Park, Sebastopol, Healdsburg, Sonoma, Kenwood, Glen Ellen, Windsor, Bodega Bay, Ukiah, Willits, Clearlake, Lakeport, and Kelseyville.