17 Feb The Truth About Debt Management Plans and Bankruptcy
As a bankruptcy lawyer, I am very sensitive to the on-going debate in newspapers, by financial “experts” on TV and on hundreds of blogs regarding the “best” way for a struggling consumer to get out of debt. Controversial and hard line positions tend to get attention so it is not surprising to find pundits to have very strong opinions, even when those opinions are not based in a true understanding of the various options.
I have personally heard well known consumer experts on the radio utter totally inaccurate assertions about bankruptcy and the bankruptcy process. My Bankruptcy Law Network colleagues Susanne Robicsek and Dana Wilkenson have recently taken TV financial guru Suze Orman to task about her oversimplification and misunderstanding of bankruptcy.
Often the debate boils down to whether a debt addled consumer should pursue non-bankruptcy options only, or should bankruptcy be a possibility.
The truth – neither of these options will offer perfect relief. If you owe money that you cannot pay and you turn to some process – either a debt management plan or a bankruptcy – your life will be disrupted. Your mental focus will be directed towards your financial problems, you will be entering a system that you know little about and you face the possibility of getting ripped off.
From my perspective as a bankruptcy attorney I can tell you that the bankruptcy process is long, complicated, intrusive, expensive and a total discharge of all of your debts is not guaranteed. I can also tell you that there are lawyers out there who advertise for bankruptcy business, but who have almost no idea what they are doing. In fact, one of the reasons that the Bankruptcy Law Network was formed was to provide an outlet for a select group of experienced and knowledgeable bankruptcy lawyers to identify themselves and to demonstrate their expertise by regularly writing about bankruptcy and debt topics.
The non-bankruptcy “debt management plan” industry has its own issues. Debt blogger Steve Rhode posits a number of relevant truths about the debt management industry on his GetOutofDebt blog. As Steve correctly notes the terms of a debt management plan (DMP) are dictated by creditors, and are generally designed to squeeze as much money from you as possible. Getting you out of debt is not the focus. Steve also notes that most DMP’s do not work and that bankruptcy is often a better solution.
There have also been a number of instances where State attorneys general have filed suit against so called bill consolidation providers for charging consumers a lot of money but delivering little or nothing in return.
Often, therefore, the best that an embattled consumer can do is to pick what appears to be the best solution form a menu of less than stellar choices.
Jonathan Ginsberg, Esq.
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