If you are having trouble keeping up with your debts, an alternative to filing for bankruptcy is a debt management plan. In this arrangement, you make payments to a credit counseling agency which then pays creditors on your behalf according to a payment plan. Only unsecured loans such as credit card debt and personal loans can be included in a debt management plan while secured debt such as mortgage loans, car loans and student loans are not eligible.
The process starts by meeting with a credit counselor, who thoroughly assesses your financial situation. In addition to debt management, other options will be presented to you, including debt settlement, and filing for personal bankruptcy. If a debt management plan is arranged, the amount you owe will not be reduced, but rather a payment plan for a period of three to five years will be set up.
The counselor then notifies each creditor of the plan, and makes the agency the payer on your account. Depending on the circumstances the counselor can negotiate with the creditor to waive certain fees, lower interest rates and monthly payments. Each month, you pay the agency electronically, and then the agency pays your creditors.
It is important to note that creditors will most likely require accounts to be closed. However, before agreeing to the plan, you can request certain cards to be kept open for emergencies or business purposes. In addition, you will not be able to take on new credit obligations for the duration of the plan.
Lastly, if you fail to abide by the terms of your plan, creditors can begin assessing fees, raising interest rates, or begin collection activities.
In the end, debt management plans can help you get control of your finances. The benefits include making a single, lower monthly payment, stopping harassing debt collector calls, and paying down the debt over time. Ultimately, an attorney with experience in debt management and bankruptcy can help you explore your options.