Each year hundreds of thousands of people search out financial counseling to get out from under their overwhelming credit card debt. Add that to the million or so required to take credit counseling before they can proceed with their bankruptcy case, and that is a considerable segment of the population struggling with credit card debt.
Not Created Equal
Not all credit counseling agencies have your best interest in mind; some blatantly take your money and nothing to offer but more bad news when you realize you have been scammed. Even if the agency is legitimate, some find that for one reason or another, they are unable to keep up with the terms of the plan and end up back where they started.
Most people are unaware that the vast majority of the funding for some agencies is from fees that creditors pay them. The ‘counselors’ receive a commission on any money they recover from the consumer. Some counselors even get a fee from the credit companies so there is even more incentive to push payment plans.
Debt Management Plans
DMP’s or debt management plans are an agreement from the debtor to pay a certain amount per month to the agency. The agency then sends money out to your creditors. Some agencies recommend the consumer pay 3% of each outstanding balance per month. This monthly repayment plan can be quite large and unsustainable for long.
Credit counseling agencies rarely mention the benefits of bankruptcy and only point out the drawbacks of taking such action. Considering they will not receive any money if you do not agree to a DMP, it is not in their best interest to point you in a different direction.
If you fail to make the monthly payments, you will be kicked off the DMP, and you will still have the enormous credit card debt. By filing bankruptcy, you can eliminate your credit card debt and will not have to make any monthly payments.
Both the DMP and bankruptcy will have a negative impact on your credit score. The difference will be that by filing bankruptcy, you will receive financial relief much sooner, in as little as three to six months for a Chapter 7 bankruptcy case.
Contact a Dallas bankruptcy attorney today to find out how bankruptcy can help you get a handle on your financial future.