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In a debt management plan, you make monthly payments to a counseling agency, which then distributes money to your creditors. Isn’t this the same as a chapter 13 bankruptcy ? If not, what’s the difference, which is better, and why?

Thanks ever in advance!

3 Thoughts on Is bankruptcy the same as a DMP, if not which one is better?
  1. Reply
    M W
    July 24, 2012 at 12:38 pm

    No, it isn’t the same. Bankruptcy is a legal action taken in Federal Court. It is overseen by a Trustee that handles your bankruptcy. You list all of your assets, all of your debts and your lawyer decides if you should file chapter 7 or chapter 13. One is an agreement for you to repay your debts at the court’s determined amount each month. The other chapter can discharge (cancel all of your debts), and you come out owing nothing.

    A Debt Mgmt Plan does not work well. Many of them are scams. You pay them the money and maybe they will pay your debts, or maybe not. They say they will negotiate with your creditors, but the aren’t always successful. Avoid them.

    Neither plan should be an option. You need to find other ways to pay your debts. Bankruptcy should be a last resort when all else has failed.

  2. Reply
    July 24, 2012 at 1:22 pm

    No, they are not the same. The chapter 13 bankruptcy is a court ordered process. The trustee determines how much creditors will be paid after reviewing all your financial info. The chapter 13 remains on your credit report for 7 years.

    Debt management programs are not court ordered. The credit counseling service negotiates lower interest and payments but NOT lesser amounts. The creditor has to agree and is not forced to accept the debt management program.

    While in the program, it is noted on your credit report. However, when you complete the program that notation is removed and you will have decent credit.

    You have to be very careful about what credit counseling service you use. Run away from any company that offers debt settlement and/or credit repair along with debt management programs. These tend to be scammers who take your money and do little else.

    Look for a NFCC member credit counseling service: These are legit, non-profit companies.

  3. Reply
    July 24, 2012 at 1:22 pm

    we don’t now nor did we ever call it a DMP, we called it Consumer Credit Counseling which has changed it’s name to CredAbility and is a free service by the federal government and yes it’s like a Chapter 13 but they ask you to cut up your credit cards, they don’t charge you, you don’t have to go to court, you must be employed to do either the plan with the government or the plan in court.

    Today if you file a chapter 7 bankruptcy and are employed then the judge will send it to mediation for the purposes of a chapter 13, so you minds well go thru CredAbility. Going thru CredAbility means you “want to” repay your loans just that you’ve been overpowered by interest and such. Both reflect on your credit report but CredAbility looks better.

    IF the CredAbility can’t be done then you’d go back to court and try for the Chapter 7, but only if you owe over $ 65 000 in medical bills or more. Don’t file for bankruptcy needlessly because it does ruin your credit report, could ruin your job or career, your insurance, in getting a job and in buying on credit.

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