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Chapter 13 offers some advantages over other options

Wayne County residents struggling with unmanageable debt may feel as if there is no clear answer to their problems. In researching their options, some find that the stigma often associated with bankruptcy drives them to consider other avenues of debt relief.

For example, a debt management plan or debt settlement may appear as ways to clear some debts without having to file for bankruptcy. To be sure, either option can help preserve one's credit score in the short term, as opposed to Chapter 13 bankruptcy which will impact a filer's credit score for a period of seven years. However, Chapter 13 is not without certain benefits which other alternatives lack.

A debt management plan must be researched carefully to protect oneself against scam artists and businesses seeking to take advantage of their desperation. There are nonprofit organizations like the National Foundation for Credit Counseling to help in this regard. Even so, a debt management plan will require monthly payments that may be out of reach.

Debt settlement does not entail monthly payments, but involves a significant one-time payment to settle a given debt. Michiganders struggling to make ends meet may find that it is not feasible to try to save up the kind of money necessary to make a lump sum payment -- in fact, they may run the risk of defaulting in other areas while they try to marshal their resources for debt settlement.

Chapter 13 bankruptcy does require repayment for a period of three to five years, typically, but manageable payments are structured by the court in a way that considers a filer's living expenses first, with only the remainder going to pay off debts. In a Chapter 13 filing, the court is also able to protect a filer in ways that other services cannot: the court can stop foreclosure actions, for example, and it can discharge debts that remain after the repayment plan has been completed.

Of course, Michigan residents should consider all of their options and weigh the advantages of each carefully. But many do find that Chapter 13 bankruptcy is an effective way to obtain a fresh financial start.

Source: Fox Business, "Debt Settlement vs. Bankruptcy: Which is Worse for Credit Score?," Jane McNamara, April 23, 2014

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