Debt relief is as a series of options for dealing with your creditors when you don’t have the means to satisfy them with usual monthly payments.
Debt Relief means a comprehensive analysis of your situation to determine what options are available to you. You might need a bankruptcy of one kind or another but we will discuss the other options that available to you.
Debt Relief options fall into to two main types. The first are voluntary and your creditors must agree to them. The second are forced and your creditors must answer to a court and cannot arbitrarily choose not to participate. Bankruptcy is the only forced option.
Debt Management Plan: Typically a program offered by a non-profit agency where your debts are put into a long-term repayment plan (often five years). In Kansas these programs are monitored and licensed by the Kansas Banking Commission.
Debt Settlement Plan: A plan in which you are typically paying into a service that is trying to settle your debts for pennies on the dollar. These are often for profit companies and although there are some success stories there are more disasters. People often pay into these companies for many months and still get sued. There are no licensed debt settlement companies in Kansas at this time. In Kansas only an attorney can represent you in a debt settlement.*
Negotiated Settlement: Often this is where you or your attorney will try to get a quick reduction in the amount owed if things can be paid off immediately or in the short term. This is an option where the debt is small enough that you can pay it off without negative consequences otherwise. You most likely need a lump sum of money on hand.*
*Beware of the tax consequences of any debt settlement plan or negotiated settlement. Debt that is written off by a creditor can be treated as income to you.
Deferment/Forbearance: These are options to put off the payment of a debt rather than deal with the debt completely. In many cases a bank might offer terms that allow you to miss a payment or two, usually moving them to the back of the note, while you try to get back on your feet. These are only temporary solutions to buy you time.
Credit Counseling: A generic term that focuses on budget management to see how much you have available to cover your obligations. The idea is that you will manage your credit usage and reduce the amount of outstanding debt you have by reducing your spending. In reality, credit counseling is not effective in most cases where you are already in debt. It is most effective if implemented before you are in trouble with creditors to help you set aside funds in the event of an emergency or help you stay on top of your debts so they do not get out of control.
Bankruptcy: A legal system with a Trustee and a Judge where the decisions are binding on your creditors and the relief is controlled by the court. The automatic stay protects you from your creditors and they are forced into the bankruptcy proceeding.
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