Need advice from those who know (preferably firsthand) about Debt Management Plans!

[lovemybugs10]

So...what did you decide?

I want to make sure to clarify that I'm not trying to push you towards bk. I haven't and have no plans to (unless I'm sued) file bk. I just want to see if you could work out a plan with them on your own.

[cghljh]

Thanks for all of your responses. My husband is calling today and I will post what we find out. We did get a draft "plan" last evening from the debt management company with the most likely outcome based on what they have worked out in the past for others. Turns out we would *probably* pay around $400 less in monthly minimums over 4 years, and fees to them would be around $2200. We're leaning towards working out plans ourselves.

Believe me, I know that it would suck to throw all of this money at the creditors and still end up having to file in a year or two, but one thing that I didn't mention when I listed our incomes is that my husband and I both have the opportunity to bring home around $1500 extra a month over the next 6 months (I have a part-time intermittent job that usually picks up around April; he is in the healthcare field and can do home health). If we can get lucky and this extra work continues to be available, then we feel like we can make a big dent and hopefully get us over the hill (or at least to the top).

Will post again when I find out what the credit cards will do for us.

[Jacey]

It doesn't hurt to see what CCCS can do for you and make your decision after that. I tried that first, and they were honest and looked at my debt and told me to file bankruptcy. I did a of investigating on my own after that and realized that it was good advice.

[HHM]

Make sure you understand what you are getting into.
DMP is not always the same as CCC. (Consumer Credit Counseling). Many debt settlement firms call their programs Debt Management Plans, but all it is is a debt settlement program. Based on what you described, you are going to be in a debt settlement plan (based on the fee).

A recent GAO (Government accounting office) investigation that these types of programs have only a 10% success rate or worse. Here is the problem, you won't make 4 years without a creditor suing you. and your credit is going to be totally trashed for the next 4 years, and then for another 3 years after your all done, assuming you can even make it. (which you wont). Also, just do the math for a second.

You have $40K in CC debt. Once you default, interest rates will go to about 29%. So in 4 years time, that debt will, conservatively, be $110,769. So even, lets assume a settlement of 30 cents on the dollar (very optimistic), you will need $33,230. However, on average, the settlements from these private companies range in the 40%, which will be $44,307.

It's a waste of money. If you CAN file BK, you SHOULD file BK. Let's assume the plan would even work, if you could file BK-7 now, your credit will be FULLY recovered well before you would even complete the DMP plan.

[BKAttyMI]

I'm going to agree with the majority here, this has "disaster" written all over it. Your debt to income ratio, even with any extra income, is way too high. I see a lot of people that have been involved in these plans for years, just to be sued and end up filing for bankruptcy anyways. By that point, their credit is MUCH worse than it would have been had they just filed initially instead of getting involved in a plan like this. Visit a few attorneys in the area, if you want to pay the creditors back, a good chapter 13 repayment plan would be perfect for you. Please don't get sucked into a plan like this, they very rarely have happy endings.

[cghljh]

So am I correct to infer that even though the creditors agree to the "plan," they will continue to view us as falling further behind on payments and will therefore sue? Why else would they sue if they are receiving monthly payments as agreed?

We are leaning towards NOT doing the plan, since we agree with you both that it's not really getting to the root of the problem. Is it not even worth it to explore our options directly with the creditors (namely Citi, which is the largest)? We'd really like to try to get it under control ourselves and feel like if there's even a 5% chance of success then we're committed to trying it. I know that this may change once we're a few months down the road. Hopefully, if that happens, we'll realize it sooner than later and file BK.

[BKAttyMI]

If you're not making the full payments, you're not making the full payments, regardless of whether you're in some "plan" or not. Yes, they can sue you even if you're making payments. Further, these companies don't even have to work with any debt management plans if they don't want to. I would urge you to visit a bankruptcy attorney and find out what the options are there. Also beware of any tax consequences of any debt management schemes you attempt.

[HHM]

If you are in REAL consumer credit counseling, you are correct, you won't be sued by any of the creditors that have agreed to the plan. But, a default is a default. If at any point, you drop out (which most people do), you are fair game at that point.

Trust your instincts, if cash flow is the issue, than CCC is of little use, it only saves you a marginal amount over the minimum payments you were already making. Granted, the plans are designed to have you out of debt in 60 months or less, but there is a weird irony or catch 22 with CCC, if you can't afford you minimums now, you cant afford CCC.

Also, are you really doing what is BEST for your family. Look at it this way, what is more important, paying your creditors or taking care of your family and your future? Let's say you have an $800 per month payment to CCC, instead of wasting it, you can save it and get your self back on sold financial footing.

[chicagoannie]

Paying $1000 a month against $40k in credit cards with them charging 10% (probably not that low but for example purposes) will take no less than 48 months. And you will have nothing but a low FICO score to show for it and maybe some pride for completing an arduous task. But pride doesn't take care of your children or put food on the table.

If you took the same money that you paid to the credit cards after filing BK, reaffirming your mortgage and getting a secured credit card to report positives. Then in those same 48 months you will have accrued $53,000 in principal and interest as well as have a FiCO score well north of 700.

I just don't see enough upside to going through CCCS, by the way the director of CCCS makes north of $120,000 a year last time I checked. Nice salary for a non-profit business. Which all a non-profit means is no money left at the end of the year, so someone has to get it.


Good luck

Brilliant post, BKParalegal.

[frogger]

Nice salary for a non-profit business. Which all a non-profit means is no money left at the end of the year, so someone has to get it.

You said a mouthful there. A lot of the "non-profits" are sure making a profit for their leaders and board of directors. Scam city....

[Pandora]

agree with all the others - dont throw good money after bad. Your credit will recover MUCH faster filing BK than going through some sort of debt program.

Save the money you'd be throwing out the window in a DMP - you'll be much better off down the road

[Clabbergirl]

I used to work for them and I will tell you the same that someone else here already has - they are only doing what you can do yourself, and charging you $45-$50/month to do it. The late payments have already damaged credit, and although you will show current for 3-5 years or whatever it takes to pay your balances off through the credit counseling, it will not remove the damage previously done - same as a bankruptcy.

Extra payments almost always are allowed and you can pay them off early if you get a windfall. Keep in mind some creditors do not negotiate, not even with counseling services like this. Depends on the types of creditors you have what kinds of deal you will get.

[Clabbergirl]

These credit counseling agencies, yes the non-profits, give the person who signs you up, that 'credit counselor', a % of your monthly fee for the rest of the time you pay as a sort of royalty. 9 years ago it was anywhere from 30-60% of the fee. As a credit counselor, you sign up 8 people a month very easy to do) and you've just increased your monthly income by $120-$160/month. And that's just one month. An employee who's been there for 6 months or more? Every month they get new clients who are paying that fee, and so on and so forth.

[csonly]

Not every creditor works with debt management companies, although most do. Also, if you have a special arrangement already with a credit card company, they may not accept you in a new DMP, so you would have to pay that outside the plan of your DMP payments. We did DMP for several years and it worked for us until I had a major pay cut and wasn't able to make that payment, along with the ones we had to pay outside the plan. Believe me, it was still very hard to make the DMP payments, it's not that much lower per month, but if you can stick with the plan, you would pay it off faster. You can call a DMP and get a consult to see what your payment would be if all cc's accepted the proposal. They would send proposals out to the companies for a specific payment amt and the company will agree or come back with another amount they want, usually higher of course. Now, ask me if I wish I would have filed BK back when we set up the DMP, I would have went the BK route definitely instead. I think of the thousands and thousands of dollars that I gave to the cc's and still owed thousands and thousands to them. I regret waiting so long and struggling. As far as your credit report, most report as being paid per DMP or something of that sort. Why not wipe the debt clean and start fresh, but that is a personal choice that you and your husband need to make. Best of luck to you!!

[cghljh]

Citi is willing to do 0% with payments of $600; of course, the account will be closed with no option of reopening, but we could care less about having a card with a huge limit ever again.

Will post again as to our progress and whether or not we change our minds. Right now we feel like this is the route we want to go.