How Long Will a Debt Management Plan Last?

When someone is in dire economic straits due to excessive debt or simply having monthly bills and financial obligations that are higher than monthly income, he or she may consider various options to reduce the amount of debt in relation to monthly income.

One common solution is bankruptcy but a second, less talked about option is a debt management plan. The duration of a debt management plan depends on the analysis given by the credit counseling agency or counselor handling a debtor's file. Plans typically last around 4 years but may be longer or shorter depending on the amount of debt involved and the debtor's income in relation to the debt.

What is a Debt Management Plan?

A debt management plan is a structured repayment plan agreed to by creditors with the assistance of a third party credit counselor. This is similar to a Chapter 13 bankruptcy, where creditors agree to a repayment schedule that is created by a bankruptcy trustee appointed by a bankruptcy court.

How Does a Debt Management Plan Work?

A consumer makes monthly payments to a credit counseling organization. In turn, the organization uses the money deposited by the consumer to pay the creditors participating in the program under the arranged payment plan.

Debt management plans are different from credit counseling or debt settlement. Only unsecured debt is allowed in a debt management plan and one's credit rating will be affected by participating in a plan. However, the results may be more favorable than if the debtor chose to file for bankruptcy.

The credit counseling agency may charge fees but might be able to lower the interest rates on enrolled debt, stop increasing late fees and generally attempt to make the debt management plan as successful as possible.

The most important consideration in entering a debt management plan is diligence. The debtor has to consistently make the monthly payments to the credit counseling agency as well as make sure the agency is paying the creditors monthly as required. Furthermore, the debtor may be forbidden to undertake additional unsecured debt.

Getting Legal Counsel

This article is merely a guide and should not be your only source of information on debt management plans. State laws may vary and a licensed bankruptcy attorney will be able to give specific information as well as determine whether a debt management plan might be right for you.

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