Debt Management vs. Bankruptcy
June 15th, 2009 | 
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Every day, individuals and families are forced into bankruptcy simply because there is no other way out of their financial distress. It is important to realize that, before having to file for bankruptcy, every possible option should be explored to help avoid the single most damaging blemish that a credit report can possess.
Companies that offer debt management, also known as debt relief, provide special programs to help those eligible to repay their debts without having to file for bankruptcy. Many people assume that just because their payments are already late and their credit is already bad, bankruptcy cannot possibly hurt them. However, nothing could be further from the truth. Bankruptcy is severe and is only for those who have exhausted all other efforts. When you file for bankruptcy, your credit report will reflect the filing for up to 10 years. Whenever you apply for a credit card, a mortgage loan or even apply for a job, they will know that you filed for bankruptcy.
So, how will debt consolidation or debt settlement services prove to be more beneficial? Quite simply, either of these methods will show your attempt to repay a debt and will only be reflected on your credit report for up to 7 years. With a debt consolidation service, most creditors will begin reporting your account as current within months of enrolling in a program. A debt settlement notation will appear as “Settled account” and will show future lenders that you repaid your creditor(s) according to a mutually agreed upon amount.
Now that we have explored the long reaching effect of debt management and bankruptcy, take a moment to consider the immediate differences of each. When you enroll in a debt consolidation or debt settlement program, you are simply picking up the telephone and speaking with a credit counselor about your finances. If approved for a program, you will sign a contract and payments will be deducted from your bank account according to the agreement. If you file for bankruptcy, you will be required to disclose every asset that you own, your income and expenses. If you own more than you are permitted to keep according to your state’s exemption laws, you may be forced to surrender it to the bankruptcy court who will liquidate the item(s) to repay creditors. In addition, you are required to appear for questioning by a court-appointed trustee hired to oversee your bankruptcy case. When you look at the immediate differences between debt consolidation or debt settlement and filing for bankruptcy, it’s obvious that the latter should only be chosen as a last resort.
Debt consolidation is designed to lower your monthly payments and interest rates in an effort to make your budget more feasible. Debt settlement, on the other hand, is a fast and permanent solution to your debt providing you have the funds available to negotiate a fair amount. Most debt management companies will conduct a brief telephone interview, evaluate your situation and explain what options are available for your own individual situation. There is no one universal method that works for everyone, which is why debt management is a uniquely customized program that is as individual as the debtors themselves. Choosing the right debt relief program is all about recognizing the need for help and not being too proud to ask for it.
Brian Dolezal
http://www.articlesbase.com/finance-articles/debt-management-vs-bankruptcy-93781.html
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Should I file for bankruptcy or work with a debt management agency?
My husband was out of work for almost a year and I lost my job. We have almost 30k in debt on credit cards. We have never been late with payments but it is starting to get tight. Should we file bankruptcy or contact a debit management agency?
You need debt relief and not management. If you are in such tight straits, I would suggest bk. Get a good attorney. All the debt management companies will do is make sure that you are still in debt, but not as much. And it will still be tight.
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Filing bankruptcy will ruin your credit for 7-10 years. I would not file bankruptcy. Call the credit card company and see if you can make smaller payments. I don’t know anything about debt management companies except some are rip offs, so shop around. Good Luck
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I hate to give advice on such a serious decision, so I hope you'll take my answer and anyone else's answer with an appropriate amount of skepticism.
In the case of bankruptcy it will be something that will follow you for a long time, however – it is something that you can recover from although it will take a number of years. It is to be avoided if at all possible, but sometimes you find yourself in a financial position that cannot be maintained or improved. If you go bankrupt, and you hope to get a mortgage on a home in the future, you'll find that http://www.myfico.com forums are a very good resource for credit repair.
However – you should consider all your options. You have never been late with payments – this is good, very good. Credit card companies will be more willing to work with you to renegotiate the terms, possibly lowering the apr and paying more of the balance off. I hope that your current debt is at a reasonable interest rate already? If not, if you stay out of bankruptcy it is very important to move this debt into low interest forms of credit. Do you have a home already with equity you could leverage against the debt?
You should check your credit score, it will give you an idea of how much leverage you have. Further – a company may be more receptive to compromises if the choice is between getting less than expected, or getting back almost nothing.
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Contact a debt management agency. Stop using the credit cards. Credit card debit is the WORST debit you can have. Next time you purchase an item ask yourself 3 questions:
Is it true? (am i paying with real money)
Is it a necessary?
Is it worth paying for now?
If you answer no to any of these questions than dont pay for it. Also, seeing a debt management agency may end up costing you more money. Try solving your problems on your own by using a free service, such as Oprah.com or buying a book to help you manage.
Some tips:
1. Always save at least 6% of your income in a untouchable account.
2. Consolidate your debt thus reducing your interest and having 1 low monthly payment.
3. Pay at least $10-50 more than the required payment each month.
4. Stop spending money on things you "want."
5. Everything you have now, is all you need.
6. Cut up your credit cards. They are not money. They are borrowed money. Everytime you purchase a product, you actually end up paying 13-40% more. So add that on to the price tag and I guarantee you that wont want it.
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Bankruptcy can be the best way to get debt relief, but debt management is a good way to keep your things, and they will knock your bill way down, although it may not be enough if you are in bad shape financially. Bankruptcy can cost around $2000.00 through a lawyer, but if you decide bankruptcy is the way you need to go, you should check into "WE THE PEOPLE" it is the way I went because I did bankruptcy last year, I was in a similiar situation with about $50,000.00 in debt. It still cost $ 500.00 dollars throught "We THE PEOPLE", but it did work out well for me.
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I think you would be good candidates for a bankruptcy because of your job situations. Bankruptcy is not the end of the world and you can recover and rebuild your credit faster than you think!
After ID theft and bankruptcy myself, I still got my score up from 486 to 730 in a little over a year, so I know about this subject. You have the right to contest negative items in your credit report and after bankruptcy you report is going to be full of errors, trust me!
Getting credit after bankruptcy is not as hard as you think because creditors know you cannot file again for 7 years!
Go to my website and read it all because a lot of what I could tell you will be there and I know it will answer a lot of your questions! including bankruptcy!
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http://www.easy-credit-repair.org
The ability to file bankruptcy is not determined by your debt, but by your ability to repay your debt. Since you say you have enough to make your current payments, you may not even qualify for a Chapter 7(liquidation) bankruptcy.
To determine if you qualify there are two means tests you must pass first. The first is if you earn more than the average for your state, the second is if you have at least $100 a month of disposable income. If you fail either of these you may be forced into a Chapter 13, which is basically a repayment plan. If you do happen to qualify for a Chapter 7 bankruptcy this remains on your credit for 10 years.
Now, if you get on a debt management program they may be able to get you on a budget and work with your creditors. If this is the case you can probably be debt free in about 3-5 years. After that you are debt free and have no lasting marks. If you go this route be sure to go with a reputable organization. You can check out http://www.nfcc.org for a list of organizations that can help
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Is your husband back to work, or plans to be back to work shortly? That will be the main question to consider.
If your finances are not going to improve soon, then you are going to be living from month to month hoping that no disaster happens that will destroy your budget. You are in a race to get more income before that happens. In this economy that's going to be a major battle.
What is it you are looking for in debt management? If you are looking for someone to lower your debt (debt settlement) that will hurt your credit score.
If you are looking for a way to consolidate your debts, that may help your current situation, but you are still going to be in a tight budget until you can find more income. All you are doing is buying time.
So lets look at TODAY. If you were to be placed on a DRASTIC budget, where you cut out all dining out, entertainment, no more cell phone or cable TV…how much money will you be have to pay down your debt?
It will take you over $700 to get out of debt within 5 years. Can you find that much money?
If not, it's my opinion you consider filing BK. If you do not have a reasonable expectation of finding more income soon, you really don't have any other choice. You can file BK and be out of debt and good credit within 4-5 years….or you can stay on the current road and battle for the next several years, and you may end up filing BK anyway.
Look around for a good non-profit credit counselor and discuss your options.
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http://www.creditinfocenter.com
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