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Anyone can fall into a distressing debt situation. All it takes is the loss of a job, an unexpected medical expense or some other unforeseen event. If this has happened to you, you may feel overwhelmed by your situation and confused about how to turn the page. These days, consumers are bombarded with advertisements for ways to get out of debt and avoid bankruptcy. Debt management programs (DMPs) are just one of the options available to consumers.
Most debt management programs promise to negotiate with lenders to settle your debt for a fraction of what you owe. In exchange, you agree to pay a percentage of that debt to the debt management company. In some instances, this arrangement can work out for the debtor. Unfortunately, there are numerous problems with these programs including:
Pricey fees--DMPs often charge numerous fees for their services. These fees often add up to more than it would cost to file for bankruptcy. Additionally, if something happens and you cannot complete the program, the fees are not refunded.
Credit score damage--Most people think bankruptcy is the worse thing you can do to your credit rating. Once your bankruptcy case is closed, however, you can start rebuilding your credit score to a respectable level. Charge offs on your debts during a lengthy debt management program can cause even more damage to your credit score than a bankruptcy filing.
Creditor harassment--Creditors are under no legal obligation to stop collection efforts when you enroll in a DMP. When you file for bankruptcy, an automatic stay on collection efforts goes into effect.
Tax liability--If your DMP does successfully get your debt reduced, you may have to pay taxes on the amount of debt forgiven. This is not true with bankruptcy.
If you have debt issues that need attention, contact us at Northwest Suburban Bankruptcy to discuss your financial situation. We can help you determine what course of action will resolve your specific debt crisis in the most efficient and advantageous way.
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