|
Many people assume that bankruptcy is a natural next
step when they can no longer control their spiraling debt. Let’s try to
understand the difference between debt management programs and bankruptcy.
On a debt management plan, you repay creditors 100% of what is owed, and in
most cases, the creditor will likely reduce your interest rates to provide
you with an affordable repayment scheme. Under Chapter 13 bankruptcy, you
repay a percentage of the amount you owe. Under Chapter 7 most of your
debts are forgiven. Your assets are liquidated. It takes 7 and 10 years
respectively to clear your credit records.
Most debt management programs are designed to be an
"alternative to bankruptcy" if you have some ability to pay or where you
need some asset protection. Some people opt for bankruptcy to avail court
protection while they sort out their debt repayment.
Debt settlement is a form of debt management program
where you work with the debt management agency to pay off the debt in full.
Before any account is eligible for a settlement, it has to be charged off
first. When your account is classified as a “charge off”, an R-9 is already
entered into your credit report. The goal of a debt settlement program is to
obtain a 'satisfied' or 'settled' rating on your credit record.
Debt settlement programs are applicable to you if you
have pretty good credit generally but have an old charged off account on
your credit report. It’s good to accelerate the removal of the stigma
associated with an R-9 on your credit report, instead of bankruptcy which
will take the full 7 years. |
