Are the Alternatives to Bankruptcy Viable Options?

Interviewer: Let's look at some bankruptcy alternatives, starting off with debt settlement. What can you tell us about that?

A Debt Settlement Is a Repayment Plan

Vance Truman: A large number of people are going into debt settlements. You've seen the commercials on TV. The main difference with debt settlement and bankruptcy is in debt settlement-the creditors have an option on whether or not they want to participate in the debt settlement. It's a repayment plan. Some creditors do attempt to reduce the interest rate and the balances.

You Will Generally Pay Back More to Creditors in a Debt Settlement than in a Bankruptcy Filing

Some of the people that come in here after they've been in the program for a couple of years are paying back more money than they would have paid back had they just filed a bankruptcy. Some were paying back money that they didn't even have to pay back, because they qualified for a Chapter 7.

The only reason they're looking to debt settlement is because they're afraid of the word "bankruptcy." Your credit is just as tarnished after a debt settlement program is completed as in a bankruptcy.

Debt Consolidation

Interviewer: What about debt consolidation? Is that the same thing as settlement?

Vance Truman: I don't see too much of that anymore, because most of these people can't get a consolidation loan to consolidate the debt anyway. Some of them do have equity in their homes. They would go get an equity loan on the home and pay off the unsecured debt.

In Debt Consolidation, You Are Changing Unsecured Debt, Which Could Have Been Discharged in Bankruptcy into Secured Debt

That's not a really good move, because you're taking unsecured debt, which you could discharge in a bankruptcy, and making it a secured debt, which you cannot discharge in a bankruptcy.

Debt Counseling

Interviewer: What do the debt management counseling companies do for individuals in debt?

Vance Truman: Some people do need help with their finances. They can't put a budget together. They don't limit their spending. There are companies out there that will manage your debt and your income and make sure that your bills are paid.

Debt Counseling Companies Charge Individuals to Manage Their Own Money

I don't know that much about them, but I know that they are expensive. You have to pay them to manage your money. There are all kind of books out there on how to manage your money and programs you can set up and follow. Some people, unfortunately, don't have what it takes to set up a program and follow it.