Many people in Florida face overwhelming levels of unsecured debt. For some individuals, using a debt management plan can be very helpful. However, debtors may want to do some research before opting for such a plan over filing for Chapter 7 bankruptcy.
Debt management plans are offered by credit counseling agencies. With these plans, people pay back all of their unsecured debt balances over a period of a couple years. The credit counselors work to negotiate lower interest rates with the creditors. Plan participants send one monthly payment to the agency, which then disburses it to the individual creditors.
Debtors normally have to agree that they will not incur new debt or obtain new credit while they are on their debt management plans. This means that they will need to set aside money in the event that an emergency arises. People should also be aware that they will need to change how they approach their finances for several years. This may involve forgoing extras and living by strict budgets.
Some debtors may want to consider filing for Chapter 7 bankruptcy instead of going through a debt management plan. In a successful Chapter 7 case, most of a person’s unsecured debts will be discharged within just a few months of filing the petition. When debts are discharged, the creditors may not engage in any further attempts to collect on the debts that are owed to them by the bankrupt debtor. This means that the debtor will not have to pay the debts and may move forward with a fresh start. An attorney may help a person to determine whether Chapter 7 bankruptcy or a debt management plan makes more sense.