Options for Credit Card Debt Resolution

The problem with most of these methods is that it is rare that you will be able to resolve all of your debt, or it costs a hefty fee to do so. Our bankruptcy options offer a legal means to resolve debt while gaining court protection from creditors, favorable repayment terms and/or total debt elimination and court oversight and approval of all associated costs and fees.

Here are some of the options that are available and how they ultimately do not compare to the benefits of filing for bankruptcy:

• Credit card consolidation loan
• Credit counseling services
• Debt management plan

Credit Card Consolidation Loan

Many people make the mistake of consolidating all of their credit cards into one loan or worse, getting a Home Equity loan to pay off these debts. Why doesn’t this work? While it will likely simplify the bill paying process, the mere act of combining all of your debt into one monthly payment does not help to reduce the principal debt. Oftentimes credit card companies offer a low or no interest introductory rate to entice consumers to consolidate their debts. What they don’t tell you is that they’ve reserved the right to review your credit at any time and have the ability to increase your interest rates at any time, derailing your efforts to reduce and pay off your debt.

A Chapter 13 reorganization may be better. Here is why:

• Full debt consolidation, not just your credit card bills.
• 0% interest repayment on all unsecured debts and debt arrearages.
• Pay what you can, eliminate the rest.
• Court protection from your creditors.
• Creditors are bound by the bankruptcy laws and don’t have the ability to “opt out” of the reorganization plan.
• Improved credit by reducing your debt-to-income ratio throughout the program and restoring timely payments to your creditors.

Filing a Chapter 7 is another option if you qualify to file and are solely trying to resolve unsecured debt obligations, such as credit card and medical bills. This options provides full debt elimination with a short and easy process.

Credit Counseling Services

Many credit counseling agencies have “not for profit” status but are most often funded largely by the credit card banks and creditors to which the debt payments are distributed to. The credit counseling agencies receive contributions known as “Fair Share” for the amount that they recover from consumers (i.e. YOU).

Are these credit counseling agencies merely a collection agency for the credit card companies? While there is no direct affiliation, the organizing body – National Foundation of Credit Counseling – does consider credit card companies as one of their “primary constituents.” Their members collectively receive two-thirds of their funding from creditors. Based on this, it is evident that their loyalties could be split.

When you hire a law firm like Acclaim Legal Services, we will solely on your behalf and for your best interests. We have no third-party affiliations or loyalties. We also offer free consultations with one of our licensed Michigan attorneys to discuss your best options for: 

• Reducing and consolidating your credit card and other debts 
• Legally eliminating your debts altogether if your budget doesn’t support repayment terms.

Debt Management Plans

Some consumers believe that working with a credit counseling agency is preferable to filing bankruptcy because the common assumption is that this type of debt management is better for your credit. While successful credit counseling debt management programs (DMP) can improve your debt or credit situation, assistance through a Chapter 13 reorganization or Chapter 7 Fresh Start or is a legal means of debt relief that may offer better settlement terms with the added benefit of court oversight.

A Chapter 7 vs. Debt Management Plan

If you have overwhelming unsecured debts and cannot make any payment efforts based on your budget and financial situation, you can file a Chapter 7 Fresh Start and eliminate the debts altogether. This process takes about three to five months to complete, but the protection from your creditors is immediate once the case is filed. Other Chapter 7 benefits include:

• Halt to judgments or wage garnishments;
• Protection from utility shut-offs;
• Elimination of loan deficiency debt resulting from a home foreclosure or vehicle repossession;
• Fresh financial start to reset your debt-to-income ratio so that you may begin re-building your credit.

Chapter 13 vs. Debt Management Plan

Below we highlight the major aspects of any debt resolution plan and how a Debt Management Program (DMP) compares to filing for Chapter 13.

Debt Repayments Terms and Debt Elimination:

Credit Counseling DMP

Many of the credit counseling agencies have pre-set arrangements with the credit card companies regarding what repayment terms can be provided (i.e., interest rate reduction, etc.)

Chapter 13 Reorganization Plan

The program provides 0% interest repayment on all unsecured debts such as credit cards, medical bills, personal loans, etc. In addition to the benefit of 0% interest repayment, the primary difference is that the Chapter 13 provides legal means to eliminate debt. The program only requires that you contribute your disposable income (i.e., income left over after the payment of necessary and reasonable expenses to support you and your family) over a 36 – 60 month plan term (required time commitment depends on your income). Any portion of your debts that cannot be paid during the plan period will be legally eliminated or discharged at the end of the program.

Your Creditors’ Approval

Credit Counseling DMP

Since they receive funding from the credit counseling agencies, many of the agencies have working relationships with the larger bank and credit card companies. However, the DMP budget plans are ultimately reliant on all creditors voluntarily agreeing to the payment terms to make the budget work. One stubborn creditor may still demand a higher payment or pursue legal resolution through a judgment and eventual garnishment and disrupt the entire budgeted plan.

Chapter 13 Reorganization Plan

Working with you, we propose the repayment plan and submit it to the court. Because the program is based on Federal law, it is approved by the court and not your creditors. One creditor does not have the power to hold up the whole process or demand terms other than what is set forth under the law. In fact, to the contrary, creditors falling into the same classification of debt (secured, unsecured, etc.) will be paid identically in a Chapter 13.

Creditor Payments and Your Credit

Credit Counseling DMP

Most DMP programs establish a budget and monthly payment amount. You begin making payments while they are negotiating with creditors. The agencies typically hold on to the funds until an agreement is reached or they have a significant dollar amount to offer payment terms to the creditor (i.e. $.50 on the dollar). In the meantime, your credit is blemished by reports of late payment to the credit rating agencies. Payment history accounts for 35% of your credit score according to FICO, so late payment can quickly have an adverse effect on your credit. Also, a lot of creditors are wise to the fact that they are being held at arm’s length by the credit counseling agencies and may seek to get a judgment and eventual wage garnishment to expedite their repayment. This would likely derail the payment plan and create other budget issues, such as a shortage of funds to pay a mortgage or car payment.

Chapter 13 Reorganization Plan

Creditors begin receiving payments under the Chapter 13 plan once the case has been confirmed by the court. This typically occurs within 3 – 4 months after case filing. They are paid by a court-appointed Trustee. The amount and order in which your creditors are paid is dictated by the repayment plan proposed by your attorney and the bankruptcy code. While you are in a Chapter 13, you are protected from judgments and wage garnishments. You are also protected from late reporting to the credit bureaus. Once the Chapter 13 plan has been confirmed by the court and payments commence to your creditors, they will begin receiving consistent and timely payments from the Trustee. Between this payment history improvement and the monthly reduction to principal debt, you can expect your credit score to improve as you move through the program.

Legal Protection (from Judgments, Garnishments, Foreclosure, etc.)

Credit Counseling DMP

The creditor arrangements are voluntary and non-binding. At any time during the process, individual creditors could demand full payment, begin formal legal proceedings, often times culminating in a writ of garnishment or other actions such as home foreclosure, asset seizure, car repossession, etc.

Chapter 13 Reorganization Plan

The Chapter 13 program provides legal protection from all creditors. Creditors are bound to the terms of the court approved plan and have to follow court procedures and noticing requirements to request any changes to the payment schedule or established court protection.

Receive a Free Debt Relief Evaluation

We encourage you call or e-mail us for a free consultation. We will evaluate your financial situation and provide you with options to improve it. We will provide you with an honest assessment of all avenues that are available to you and answer questions you may have regarding options you are exploring. Please call us toll free at 866-261-8282 to schedule your free evaluation. We have convenient office locations in Detroit, Ann Arbor, Flint, Southfield, Dearborn and Warren, Michigan.