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get a realistic picture of their financial condition and try to come up with a workable solution short of filing for bankruptcy. They can also help them build life long skills and strategies to manage their money and debt, and develop and work within a budget. There are many non-profit organizations such as universities, the military, credit unions, and housing authorities who have certified credit counselors on staff or can provide a referral. The National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agencies are two good resources for learning about credit counseling or locating a qualified credit counselor. Debt Management Plans. Some credit counseling agencies may recommend that the debtor enroll in a debt management plan (DMP) . Under a DMP, the debtor and credit counselor work out a repayment plan with creditors. This may include lowered interest rates, reduced debt, and fee waivers . The debtor deposits money on a regular basis with the credit counseling agency. In turn, the credit counselor ensures that bills are paid as required and on time each month. Experts warn, however, that entering into a DMP will have a negative impact on your credit score. With discipline, effort, and a plan many people can reorganize their finances and pay off creditors on their own, without a DMP. Debt Consolidation Companies. There is so much consumer debt in the U.S. that a whole industry has built up around managing it. For-profit debt consolidation and settlement companies advertise on television or radio claiming they can negotiate debt settlements with creditors for “pennies on the dollar” or make some other irresistible promise. Once the debtor signs up for their services, the company may instruct them to make payments into an escrow account while the company negotiates with creditor(s) for a lump sum settlement in a lesser amount than what is owed. They often advise the debtor to stop making payments to creditors while the settlement is under negotiation. Unfortunately, if a debtor stops paying a creditor and no settlement is reached, they will have run up late fees and penalties and done additional damage to their credit report. Experts advise extreme caution. Before signing up with a for profit debt settlement or debt consolidation company, thoroughly research their credentials, reputation and results. Many are scams. PRODUCT PREVIEW THE BIG PICTURE
Overall, bankruptcy is a sad and difficult event. However, society benefits from laws that make financial risk more manageable and impartially represent the interests of debtors and creditors alike. The three chapters of bankruptcy you are most likely to encounter in your life are 7, 11 or 13. Chapter 7 is a straight bankruptcy with the liquidation of assets to pay creditors. Chapter 11 allows a business to discharge some debts while continuing to operate. Chapter 13 enables people with a steady income to eliminate or reduce debt and work out a repayment plan with creditors. Some debts, like criminal fines and penalties, most taxes, and student loans cannot be eliminated in bankruptcy. A bankruptcy case stays on a credit report for seven to ten years. A qualified credit counselor can help get debt under control.
Chapter 18 | Resolving Insolvency 358
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