A great many more people are turning to debt management as an alternative to bankruptcy. The reason behind this is as the result of a new bankruptcy law that was enacted on October 17, 2005, this has meant a nasty shock for many consumers wanting to make a clean break in bankruptcy court.

It used to be that 70 per cent of people filing for bankruptcy were granted Chapter 7 status, which meant that any unsecured debts were wiped clean. As a result of the new rules this has now changed. If you earn more than the median for your state, or you can afford to repay a minimum of $100 per month toward your debts, you will be refused Chapter 7. Instead, you will be granted a Chapter 13, this means that you repay some of your debt over 3-5 years. That\’s not all. The court will calculate your allowable living expenses based on approved IRS schedules, not what it actually costs you. So you may not be able to afford the $100 a month, but the judge is likely to tell you that you can. Rather than wiping the slate clean, most people will be confronted with a severe 5-year plan, based on a budget set by the court, which will result in having to get used to a considerably lower standard of living. Compared to that, debt management seems to be a very interesting proposition.

OK, I realise that debt management has its critics. It took me a while to come to terms with it myself. But what everybody fails to realise is that the only alternative is bankruptcy more often than not!

Why don’t we look at the three main gripes regarding debt management and I will explain why the critics are wrong.

Debt management will adversely affect your credit rating.

This is real easy to squash! If you cannot afford to meet with your repayments your credit rating will be harmed anyway. Alternatively you could file for bankruptcy, do you really think that opting for this course of action will not affect your credit profile. Add to that the fact that you will probably be awarded a Chapter 13 bankruptcy you are more likely to continue struggling to survive because of the court imposed budget.

Why pay a debt management fee when there are free options?

Yes there are free options; however these free options have had their funding removed in the UK, which means that most of them will disappear before very long. Even if you are lucky enough to have the option of a free service it will mean that you will have to do most of the work writing to your creditors, and still deal with all the stress. By paying a fee to a specialist debt management company, they will deal with your creditors on your behalf, and the fee is actually funded from the reduced repayments that the debt management company negotiate for you.

Debt management is running away from your debts.

I agree going down the route of any debt management plan as opposed to repaying the debt you have taken on is not the ideal situation. However nor are the reasons that cause most people to choose this path. In an ideal world we would all be in safe secure jobs with enough income to live comfortably, unfortunately it is not an ideal world that we live in. More and more people are losing their jobs or have had their pay cut, and because of the credit crunch are unable to refinance through a debt consolidation loan. That sadly does not leave many options open!

Author Bio: Tom Dawson is a UK finance expert he has a wealth of experience helping people choose the best debt solutions and helping them to get a loan with bad debt, why not see what he can do for you?

Category: Finances
Keywords: debt management, debt help, debt advice