When Declaring Bankruptcy May Not Be Your Best Option

Is Bankruptcy the Best Option For Me?

Bankruptcy is often seen as the final resort for individuals grappling with overwhelming debt. However, there are alternatives that may be a better fit for your financial situation. One such alternative is a Debt Management Program (DMP). This article explores the intricacies of a DMP, illuminating why declaring bankruptcy may not be your best option.

What is a Debt Management Program (DMP)?

A Debt Management Program, or DMP, is a debt consolidation strategy that doesn’t require borrowing additional funds. It’s a method of consolidating all outstanding debts into a single, manageable monthly payment. Unlike filing for bankruptcy, a DMP does not legally absolve your debts but works to make them more manageable.

 

A DMP is typically facilitated by a non-profit credit counseling service, with the goal of eliminating your debt in less than five years without needing to resort to bankruptcy.

 

How does a DMP work?

When you enroll in a DMP, your chosen credit counseling agency takes the lead in negotiating with your creditors. They aim to devise a repayment plan at a lowered interest rate, or in some cases, no interest at all.

While creditors are not obligated to accept a DMP, they are likely to do so if it appears viable. Once the DMP is agreed upon, the creditors will liaise directly with your credit counseling agency until your debt is fully repaid through the program.

The Process of DMP

Choosing a Credit Counseling Agency: The first step is to find a reputable credit counseling agency that you are comfortable working with.

Setting Up the DMP: There is usually a nominal setup fee for a DMP, in addition to a small monthly fee (10% of your payment amount, up to a maximum of $75).

Making Monthly Payments: Like a consolidation loan, you make a single, affordable monthly payment to the credit counseling agency, which they then distribute to your creditors.

Impact on Credit Score

Enrolling in a DMP does impact your credit score, as it shows that you are making payments with the help of a third party. However, once you have completed the program, any record of debts repaid through the DMP is removed from your credit report 6 years after the start of the program or 2 years after you finish, whichever comes first.

 

This effectively gives you a clean financial slate shortly after the completion of the program.

 

Exploring Bankruptcy

Contrary to popular belief, bankruptcy is not always the best solution for overwhelming debt. It’s a legal process that can excuse you from your debts, but it comes with significant ramifications, such as a severe impact on your credit score and potential loss of assets.

Before you consider this option, it’s recommended to consult with an accredited credit counselor to explore all possible alternatives and understand exactly what bankruptcy entails.

In Conclusion

Understanding your financial situation and exploring all your options is crucial before making a decision. While bankruptcy might seem like the only way out, alternatives like a Debt Management Program could potentially offer a more favorable outcome.

 

Remember, the key to financial recovery is not just about eliminating debt, but also about learning to manage finances effectively to prevent future debt.

 

Now that you know when declaring bankruptcy may not be your best option, it’s time to take the first step towards financial recovery. Find a credit counsellor and explore your options today.

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