Nobody wants to stay immersed in the soul-crushing stress of debt, with its harassing phone calls from lowlife collection agents, the shame and embarrassment you feel and the fights it causes in your marriage or family. Whether the debt came from a divorce, a layoff, an illness or another unfortunate event, it doesn’t really matter: When you’re stuck in it, you just need to GET OUT.
But what’s the best way for you to get out of debt and avoid as many negative consequences as possible? How does Chapter 7 bankruptcy stack up against popular non-profit debt management plans? Which one (if either) might be right for you? Let’s take a quick look.
The benefits and drawbacks of Chapter 7
If most of your financial problems come from credit card debt or medical debt (or similar unsecured debt), then there is one ENORMOUS advantage that Chapter 7 provides: NO MORE PAYMENTS. Chapter 7 can discharge ALL your credit card and medical debt if you qualify, while a debt management plan will usually require you to make payments for years.
So the bankruptcy can save you thousands of dollars (or tens of thousands, or more) in payments. That’s money you can use for housing, transportation, food, kids’ expenses and everything else.
For some people, the main problem with Chapter 7 is that it is a bankruptcy, and they think bankruptcy is very bad. They are afraid that “their credit” and their reputation will be trashed … but they also probably don’t want to spend years sending in payments they can’t afford to make.
The benefits and drawbacks of DMPs
When compared to predatory credit card interest rates, debt management plans can provide wonderfully low, negotiated rates and manageable monthly payments to people who can afford them. Imagine having your credit card interest rate drop from 21 percent to 3 or 4 percent — it’s not uncommon. Nonprofit financial counseling companies can be a good resource for consumers who really want to pay off their debts and are actually able to do so, with some structured help.
Again, DMPs require you to make payments faithfully for a specified period of time, and they charge you a fee to participate. A $500 monthly DMP payment, for example, will cost you $18,000 over a three-year stretch. A typical Chapter 7 will usually cost a fraction of that.
Your situation is unique
It sounds cheesy, but it’s true. Reading bankruptcy blogs can provide good information, but it won’t get you closer to the actual debt relief you want. Talking to trusted, experienced professionals will.