This is the fifth in a series of posts regarding the alternatives to bankruptcy. The series will discuss debt consolidation, debt settlement, mortgage modification, and debt management programs.
What is a Debt Management Plan?
A Debt Management Plan (DMP) is a budget that you set up to pay off your debts in a set number of years. The budget can be put together by a credit counseling agency or you can do your own program, if you have the discipline.
What Kinds of Debts are Included?
A DMP will help you with mostly unsecured debts (credit cards, lines of credit with no collateral backing them up). They generally will not help with secured debts, such as your mortgage or car payment. In addition, a DMP will only help with taxes if you’ve already arranged a payment schedule with the IRS and follow it.
Is there anything a DMP will not help with?
A DMP will not help you keep your house if you are behind, unless part of your DMP is to negotiate a home loan modification and you can get affordable payments set-up. It would be up to you to obtain the home loan modification and adjust your DMP accordingly.
What are the Risks Associated with a DMP?
Similar to debt settlement, the risks associated with a DMP are that you won’t be able to continue making payments for whatever reason and your creditors are not bound to accept any of your arrangements, so they could still sue you and get a judgment against you. If you have so much debt that you could not reasonably make more than the minimum payments each month, a DMP would probably not be in your best interests. If you are just making the minimum payments, it often takes 15-20 years to pay off a credit card and hopefully, a DMP would allow for payoff in 5 years or less.
This is just a basic overview of debt management plans and is not legal advice specific to your situation. If you are considering bankruptcy or alternatives to bankruptcy, you should speak with an attorney in your area for legal advice.