Especially after the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 (BAPCPA), as part of ones
process infiling for personal bankruptcy, consultation with a credit counselor
is required. However, meeting with a credit counselor does not make bankruptcy
a foregone conclusion. Ideally, debtors will be informed of all of their
potential options with the proper weight and risks considered for each.
One such service that an agency may propose to a client, depending
on his or her circumstances, is a debt management plan. Debt management
plans may not be a wholly familiar possibility for prospective bankruptcy
petitioners, but they are recognized by credit counseling agencies around the
United States. Prior to assent to a debt management plan, parties should make
sure they do their homework. The following are some considerations for engaging
in debt management plans:
Despite the rather generic terminology,
a debt management plan is a specific debt adjustment strategy.
Within debt management plans, debtors work directly with their credit
counselors rather than continuing to have to field a battery of questions from
creditors day after day. Debtors will make monthly payments to the credit
counseling agency that go towards existing financial obligations such as
student loans and credit cards, effectively making the latter party an
intermediary in these affairs. Said monthly deposits will be commensurate with
figures predetermined in an agreement between debtors, creditors and the
coordinating agency.
A debt management plan may be more
advantageous to the debtors than other repayment schemes in a number of ways. First, debt management plans are not the same thing as
filing for bankruptcy. While the act of repaying lenders according to a debt
management plan and through a third party resembles the way trustees manage
payments in Chapter 13 bankruptcy,
it is much less forma l and does not carry the negative consequences that come with filing for bankruptcy. In worst-case scenarios, however, a debt
management plan can be an inferior option to filing for bankruptcy,
as bankruptcy is specifically governed by the Federal court system.
