Agency Option Debt Management Plans to Consider

Especially after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), as part of ones process infiling for personal bankruptcy, consultation with a credit counselor is required. However, meeting with a credit counselor does not make bankruptcy a foregone conclusion. Ideally, debtors will be informed of all of their potential options with the proper weight and risks considered for each.

One such service that an agency may propose to a client, depending on his or her circumstances, is a debt management plan. Debt management plans may not be a wholly familiar possibility for prospective bankruptcy petitioners, but they are recognized by credit counseling agencies around the United States. Prior to assent to a debt management plan, parties should make sure they do their homework. The following are some considerations for engaging in debt management plans:

Despite the rather generic terminology, a debt management plan is a specific debt adjustment strategy. Within debt management plans, debtors work directly with their credit counselors rather than continuing to have to field a battery of questions from creditors day after day. Debtors will make monthly payments to the credit counseling agency that go towards existing financial obligations such as student loans and credit cards, effectively making the latter party an intermediary in these affairs. Said monthly deposits will be commensurate with figures predetermined in an agreement between debtors, creditors and the coordinating agency.

A debt management plan may be more advantageous to the debtors than other repayment schemes in a number of ways. First, debt management plans are not the same thing as filing for bankruptcy. While the act of repaying lenders according to a debt management plan and through a third party resembles the way trustees manage payments in Chapter 13 bankruptcy, it is much less forma l and does not carry the negative consequences that come with filing for bankruptcy. In worst-case scenarios, however, a debt management plan can be an inferior option to filing for bankruptcy, as bankruptcy is specifically governed by the Federal court system.

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