There are a lot of debtors using services designed to bring all of their debts together into a single payment. The problem with these services is the cost – you are often extending the period of all monies owed, and paying a higher interest rate. Sure, the monthly payment plan is lower, but the final total paid can be substantially higher. Of course, your creditors will need to approve of this approach as well. You can achieve the same result through a Chapter 13 petition for bankruptcy, interest free, and your creditors have to accept the plan.
A chapter 13 bankruptcy comes with added bonuses. If your home is underwater, then you may be able strip back any secondary mortgages. You may even be in a position to modify your car loan if that too is underwater. The end result for most petitioners is a monthly payment plan that is interest free, is less than what they are required to pay pre-bankruptcy, yet will, over the life of the plan, repay most of their debts. Your mortgage payments should also be brought up to date as well.
If you do enter a payment plan that pays out debts rather than having the debts discharged, be sure to check your credit history. If it doesn’t show the debt paid in full, ask your attorney to contact the lender to update your credit history. While bankruptcy may appear on your credit history, it will also show that many of your debts were fully paid through the payment plan. This will help you rebuild your credit score post-bankruptcy.
Payment plans are expensive and often put together by those who are paid by creditors. This means their allegiance is not to you, but to the credit providers, so these plans will always work in their interest, not yours. Instead, consult a bankruptcy attorney – they will work towards a solution that favors your interests instead.
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Posted January 16, 2012 by Amelie Hampton under Bankruptcy Articles