Debt Management

Debt Management signing paperwork.Settle your debt for pennies on the dollar without filing bankruptcy – this is a typical catchphrase debt settlement companies use. Sounds great but beware of the process and the uncertainties that it brings. Here is a quick comparison of debt settlement and bankruptcy debt management settlement. Remember that your financial situation is unique and that you would be in much better position to make the best decision for you and your family if you explore ALL options with experienced attorneys.


Debt settlement is typically done through a debt settlement company. That company negotiates your debts with credit cards and other creditors with the hope that those credit cards will take a lesser amount of money (or at a lower interest rate) than you are paying now. There is no guarantee if any or all of your creditors will actually settle.

Creditors are not legally required to work with you or the debt settlement company.

Debt settlement is usually limited to unsecured credit cards and personal loans. It WILL NOT  work with ongoing car payments, ongoing house payments, and garnishments.

Unless you have cash on hand (and let’s be realistic here most people do not) you will be required to make monthly payments to the debt settlement company.

That debt settlement company will likely put all the funds into an escrow type account. They will almost always pay themselves first. When or if the debts are settled the company will use the money collected to actually pay your debt. You may have to pay fees to the escrow account company (these are often hidden fees).

Depending on the amount of debt you have you can be making monthly payments into the escrow account for a few years without actually having settled a single account with any of your creditors. The debt settlement company is relying on your creditors to sell your debts to other companies and then settle them.

Once you have enough money accumulated in the account the debt settlement company will begin negotiating on your behalf.

If the debt settlement company goes out of business or if they are unable to settle your claims there is no guarantee that you will get your money back. There is no direct oversight by the Court. 

You will pay fees upwards of $3,000 to a debt settlement program with a high rate of failure for their services. There are no guarantees and no oversight for their services.

You will also pay an undetermined portion of your actual debts, assuming the company’s ability to actually settle your debts and the willingness of your creditors to work with them (and you).

Debt settlement by itself does not prevent collection calls. Debt settlement companies rely on you to send letters to your creditors under another set of federal laws to stop the phone calls.

The success rate of debt settlement programs is very low in terms of the total settlement of someone’s debts. An individual may get 4 out of 10 debts settled, but by the time that is done the other 6 debts will have ballooned out of control due to increased interest rates, late fees, and penalties. The savings from settling some of the claims is then wiped out and you are often facing lawsuits.

Your credit report will most likely suffer due to late payments and possibly reports of write-offs. This type of reporting goes on monthly until the debt is settled or until it lapses off of your report (7 years in most cases from the time of default).

The constant month to month negative reporting often has a greater long term negative effect than a bankruptcy by itself.

Even when debts are settled, they often report as paid in less than full.

There are serious consequences if you stop communicating with your creditors directly and instead rely on non-attorney representatives – such as getting judgements against you.

If you get sued during a debt settlement program you will soon discover that you do not have an attorney. They may guide you to file documents on your own in the lawsuit, but they do not appear or argue for you.

Tax consequences – creditors will issue a 1099 for the amount of debt that was forgiven. You may have to pay taxes on that amount. This means that if you settle your $50,000 of credit cards for $20,000 you will get to pay taxes on $30,000 of income.


Bankruptcy allows you to discharge (clear) most debts (some debts such as student loans and recent tax obligations might not be dischargeable).

When you file bankruptcy you should have a good idea of how much, if anything, you would be paying your creditors back before you even file the case.

Creditors are legally required to go through the bankruptcy court. They cannot opt out.

A bankruptcy will deal with all of your debt management. You may have to pay on some things through the case, or some things (student loans) may survive the case, but a bankruptcy will effect everything.

If you file a Chapter 7 bankruptcy, you will most likely not have to make any further payments towards your credit cards, personal loans, or medical bills. Most basic bills are discharged.

If you file a Chapter 13 bankruptcy, you will be making a monthly payment to the Trustee. Depending on your particular situation, you might be paying a portion of your creditors back, you could also be paying some creditors but not others – thus, actually paying pennies on the dollar on the debt management you had.

In a chapter 7 bankruptcy you will normally receive a discharge within 6 months. The discharge order will wipe out the credit cards, personal loans, and medical bills.

In a chapter 13 you will propose a plan that will go before a judge. The plan will run from 3 to 5 years. The plan will be approved by a judge after review as long as it meets the requirements set out by the bankruptcy laws. The Court will issue the order approving the plan normally within a few months of the case being filed.

Your case is reviewed by a trustee and a judge. Your attorney and your creditors are subject to the authority of the Court.

Depending on the type of bankruptcy you file you could pay between $700 and $3,600 in attorney fees. Filing fees are $335 for Chapter 7 (which can be waived in some cases) and $310 for Chapter 13. In some cases you can file without any fees in hand.

If you are required to make monthly payments for your debt management to your creditors you will usually know how much you will be paying over the life time of your plan before the case is ever filed.

Bankruptcy stops all collection calls, letters and lawsuits. When your case is filed the court sends a notice to your creditors – that is a court order stopping them from additional contact or action.

The vast majority of Chapter 7 bankruptcies result in discharge for the person filing the case, and in our office it the discharge rate is probably better than 99% when our clients follow our instructions.

The completion rate for Chapter 13 Bankruptcies in our office is close to 85% and is about 70% in Kansas.

The fact that you filed Bankruptcy will be reflected on your credit report. In our experience it will have a substantial one time negative effect.

Chapter 7 is reported for 10 years from the date of filing.

Chapter 13 is reported for 7 years from the date of filing.

However, once the bankruptcy is filed creditors have to stop reporting on your credit. This means you no longer have the month over month negative reporting that occurs when you default on debts.

You no longer have to communicate with your creditors. The Automatic Stay – a unique feature of bankruptcy debt management – stops all collection activities, including law suits, telephone calls and letters. If you do have to communicate with your creditors you will do so through your attorney.

If there are legal proceedings they are controlled and you have guidance if you have hired an attorney.

No tax consequences for discharged debt.

Debt Management

If you would like to try debt management contact your credit card company directly, explain your situation and see if you can work out a manageable repayment plan. Being persistent is a key. You might need to call multiple times to get to the right department or to talk to the right person.

The State of Kansas certifies credit counseling agencies. In Kansas, outside of doing it yourself, only a licensed attorney or a certified company can settle or help you manage your debts. The Office of the State Banking Commission regulates and certifies these companies. If you want to know if a company is certified, go to and click on Credit Services Organization in the License/Charter Type box. A list of licensed agencies in alphabetical order will pop up and you can scroll through them.

What if the company is not on the list? Don’t take the risk. You will be doing business with an agency that clearly does not abide by the law. The consumer protection laws in place in Kansas are there to keep people from being taken advantage of.

Let’s take this a step further and imagine that the company is not on the list and you are doing all your business with them by phone and email. Please don’t do it. If you cannot sit down face to face with them in the same room, do not hire them.

What if the company says they are not on the list but have a local attorney that handles everything for them? This is a way of getting around the law that requires them to be certified. Well, if that is true, make sure you are dealing directly with the attorney. A competent attorney will discuss your options with you, including bankruptcy, explain the risk of debt management not working and will do a budget with you to make sure that you can afford to make whatever payments will be necessary to make a debt management plan work. You have to make sure that it is the attorney that is actively running your debt management and not the company staffers who are several states away.

There are legitimate nonprofit agencies in Kansas that help people with credit counseling. They are regulated, honest, and have your best interest at heart. We may think we can offer you a better alternative but if you insist on going this route hire someone you can talk to face to face (not online).

Do your homework. Use legitimate sources to navigate debt management. For instance, Federal Trade Commission and Consumer Financial Protection Bureau have excellent resources on these types of programs. and

Finally, call an experienced bankruptcy attorney and ask questions about what bankruptcy would look like in your situation. Bankruptcy cases are unique and should always be carefully planned around the individual’s situation.


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American Bar AssociationKansas Bar AssociationKansas City Bar Association,

National Association of Consumer Bankruptcy Attorneys, Topeka Area Bankruptcy Council.


Find out if bankruptcy is the best option for you. Talk to a lawyer today.