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Debt management plans versus bankruptcy

Some Florida residents who have substantial levels of unsecured debts may wonder how they can pay off their obligations. Others may feel that they are insurmountable. Some may benefit by debt management plans through credit counseling agencies. Others may be better off with filing for bankruptcy.

When people enter into a debt management plan, the credit counselor will work to negotiate lower interest rates with the creditors. People will then pay off their debts over a plan period that lasts between four and five years by making one payment to the credit counseling agency each month. The agency then distributes the payments to the listed creditors.

Many people struggle with debt management plans because they require substantial changes to their lifestyles. The plans also may cause people's credit scores to drop initially. Some people may instead do better by filing for Chapter 7 or Chapter 13 bankruptcy. In Chapter 7 bankruptcy cases, most types of unsecured debts may be discharged, allowing the debtors to have fresh financial starts.

Chapter 13 bankruptcy involves a repayment plan that lasts between three and five years. Unlike debt management plans, the repayment plan often involves repaying only a portion of the unsecured debt balances. At the end of the repayment plan, the remaining balances of the unsecured non-priority debts are discharged. People who are overwhelmed by their debt might want to consult with bankruptcy lawyers about whether debt management plans or bankruptcy might be better for their particular financial situations. There are a variety of eligibility requirements for bankruptcy filings that a lawyer can explain.

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