Ads abound for “debt management”, “debt consolidation“, “credit counseling“, all playing into the stress that the financially over- committed live with.
Over and over, people say they want desperately to pay back their debts, if they could get reasonable terms. One on one, their creditors refuse. Or propose terms that are not feasible.
Chapter 13 is the better alternative
Debt repayment, without the need to negotiate with your creditors or pay another entity, is available in Chapter 13.
It comes without the pitfalls of out-of-court programs and is enforced by a federal judge.
Its cost is the court’s filing fee; your attorneys fees as allowed by the judge; and the trustee’s commission.
Chapter 13 requires creditors
- to stop collection action when the case is filed
- accept payments as provided in the Chapter 13 plan
How much do creditors get
Chapter 13 plan payments are based on what is available in the debtor’s budget after reasonable living expenses. Some “debt consolidation” plans advertised on TV provide that half of the debtor’s take home goes to the consolidator. Some such programs are outright scams.
Even when the promoters are honest, most debt management plans fail.
The typical debt management model puts the first couple of your payments into their pocket. They have no way to keep creditors from calling you, or even suing you. Many creditors say flatly that they don’t participate in debt management programs.
The negative credit reports continue.
Most participants find over time that they can’t make the payments or that a nonparticipating creditor creates a crisis.
Compare cost of debt settlement and bankruptcy
The “set up fee” in bankruptcy, if you will, is the court’s filing fee of $274. The ongoing cost is the commission of the trustee, calculated at a percentage of the payments you make to the plan, usually between 4 and 10%.
At the end of the bankruptcy case, the dischargeable debt is no longer enforceable.
Better still, there are no tax consequences to the cancellation of debt in bankruptcy, as there are in debt management programs.
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