Debt Management

According to the Pension Protection Act of 2006, credit counseling agencies must tailor their services to meet the individual needs of the client. ​In some cases, a client's debt situation can be addressed through a debt management plan, which allows the client to make one single payment.

 

A Debt Management Plan (DMP) begins when the creditors accept an individualized proposal for repaying delinquent loan amounts. The client will often receive concessions from the creditors, including lowered or eliminated interest rates. The creditor will often re-age an account even before the client has paid it off, after three or four on-time payments. Late and over-the-limit fees are eliminated. Depending on the creditor, the benefits are automatic or received after the payment plan has been established through regular, on-time payments. Clients can expect assistance from the agency throughout the DMP, including handling billing errors and resolving other issues that may arise. The appropriateness of a DMP depends on the amount of debt, the policies of the individual agencies, and the counseling session.

 

A client's current financial situation must be considered holistically, and they must have unsecured debt and a monthly income sufficient to maintain the proposed payment plan. From the creditor's point of view, customers who enroll in debt management plans are doing something about their debt, and the creditor is open to negotiation. A debt management plan is a cost-effective alternative to selling a delinquent account to a collection agency. The Federal Trade Commission recommends that clients participating in a debt management plan make regular, timely payments.

 

Clients need to inform the agency about any changes in their circumstance so that they can get help. If you enroll in a debt management plan, your credit cards will be closed, but you can maintain one card. A debt management plan may have a negative effect on your credit report if you have perfect credit, but a positive effect if your credit is already blemished from late payments or charge-offs.

 

If you file bankruptcy, you may be required to surrender all assets not exempt in your state, receive a discharge, but the bankruptcy may remain on your credit report for up to 10 years.

 

A debt management plan (DMP) maintains a positive relationship with creditors, while a Chapter 13 bankruptcy discharges debts. If a creditor takes you to court, the credit counseling agency can provide evidence of your good faith effort to repay the debt. If you withdraw from a debt management plan, you will lose the benefits of the agreement and collection activity will resume. Credit counselors assess the needs of their clients and can implement a debt management plan when appropriate. These agreements with creditors have several advantages, including one monthly payment and reduced interest fees.

 

A debt management plan (DMP) is a type of bankruptcy settlement agreement between a creditor and a debtor.