Someone who is experiencing a difficult financial situation may not feel comfortable negotiating a payment plan with creditors or collection agencies. Some will turn to nonprofit or credit counseling agencies who function as a go between a borrower and creditors to come up with a plan to repay debts.
A debt management program is not unlike a Chapter 13 bankruptcy, which also strives to set up an affordable repayment plan to eliminate debt. Although they are similar in some respects, Chapter 13 bankruptcy protection has distinct advantages:
- Chapter 13 protects debtors from collection actions. All creditors are legally bound to the bankruptcy plan and cannot simply opt out to resume collection actions putting a borrowers assets at risk.
- Debt management plans require borrowers to pay debts in full even if it takes several years. They often continue to charge interest during the repayment plan. Chapter 13 filers, on the other hand, often pay a fraction of the debt they owe over the 2 to 5 year repayment period with any remaining unsecured debt discharged at the end of the repayment plan.
- Debt management and debt settlement scams are not uncommon so it is important to understand your rights and responsibilities under the plan before signing. Bankruptcy law is a legal process that has protections built in.
When you are facing a difficult financial problem, and have questions about debt counseling services versus bankruptcy protection, contact Peoria Illinois attorney Charles E. Covey to get answers at 309-674-8125.