Sacramento Bankruptcy Attorney serving Carmichael discusses the advantages of filing Chapter 7 or Chapter 13 Bankruptcy instead of Debt Management Plan (DMP).

There are numerous reasons why people are reluctant to file for bankruptcy protection.  They worry about the impact on their credit, they worry about the judgment of others, and many people have heard misleading statements about the changes made to the bankruptcy law in 2005.  One alternative to bankruptcy that is frequently advertised is the form of debt consolidation known as a Debt Management Plan (DMP).  These places tell you that they will negotiate lower balances, interest rates, and payments with your creditors by paying them a monthly payment, which they will then redistribute.

Sounds like a great idea, right?

But what these places don’t make clear are the numerous potential drawbacks of DMPs, Including:

DMPs are not formal or legally binding agreements

Having worked on numerous bankruptcies, I have met many debtors who tried DMPs prior to filing bankruptcy.  I have heard firsthand of several instances where even though the company in charge of the DMP claimed to have made the negotiations, the debtor was still sued by one or more of the creditors who were supposedly on-board with the plan. And this was after the debtor had started making the payments on the DMP!  But because the DMP is not a formal or legally binding agreement, there really wasn’t much the debtor could do but to file bankruptcy. Plus who has the time and money to sue the company handling the DMP, especially when there is no guarantee the outcome will be successful.

DMPs are a long commitment

The majority of people who sign up for DMPs do so intending to complete their payment plan so they can obtain a fresh financial start.  But with today’s shaky economy and high unemployment rates, there are very few people who can be 100% sure that they will continue to have the income required to completely pay off their DMP.  Many people who sign up for DMPs end up paying thousands of dollars towards the DMP only to find the payments are not sustainable. A high percentage of these people end up having to file for bankruptcy anyway, and wish that they had just filed in the first place so that the money they invested could’ve gone towards their future economic goals.

Financial Freedom Law is an experienced, compassionate partner that can help you decide among many options, depending on income, assets, the nature of your debts, and the goals you may have after completion of a Chapter 7 or Chapter 13 bankruptcy.  Please contact our Sacramento office at 916-313-9069 or via email at info@california-bankruptcyattorney.com.