These days, for whatever reason, it seems that we’re hearing more about people falling behind on their debts. With household money tightening up, people are being selective about who to repay. If you’re in that boat (and it’s probably a pretty big boat), you may have heard on the radio, or television, or the internets about Debt Management Plans.

Simply put, a debt management plan is this: A plan (offered by a credit counseling agency) to repay your credit cards and bring your debt down to zero in approximately 5 years. You don’t have to file for bankruptcy. You can start rebuilding your credit immediately. Sounds like a pretty good deal? Maybe it is. But maybe a debt management plan isn’t right for you. And maybe a chapter 7 or chapter 13 bankruptcy offers a better (economic) deal for you.

First, let’s evaluate whether a debt management plan is a good deal (for you). It’s certainly a good deal for the credit card companies. After all, they’re still collecting some interest on your balances (although nowhere near the 30% default rate; more likely closer to something around 9-10%). It is also a good deal for the credit counseling agency. They are likely collecting around a 10% fee with each payment you submit.

But where’s the benefit for you, the debtor? Like I said earlier, you begin to start rebuilding your credit. But if you can’t meet the responsibilities of the plan, it could impact your credit negatively again. And maybe you’re fulfilling your own personal moral obligation to repay your debts.

If considering a debt management plan, the debtor should also consider bankruptcy before committing to anything.

For a fraction of what it would cost in debt management plan maintenance fees (the roughly 10% that the credit counseling agency charges for administering the plan) the debtor could file for bankruptcy. In addition, the total out of pocket cost will most often be significantly less than what you would pay through a debt management plan.

Think of it this way: In a typical chapter 7 case, the debtor’s only monetary costs are the attorney fees and the court filing fees. Plus a chapter 7 bankruptcy generally takes 4-6 months, and allows the debtor to begin rebuilding his or her credit a lot sooner than the debt management plan.

In a chapter 13 bankruptcy, the debtor is still paying through a payment plan, similar to that of a debt management plan. However, the amount the debtor pays per month is often quite less than the amount credit counseling agencies require to complete a debt management plan. Plus the chapter 13 plan can provide for some secured debt and tax debt, items that the debt management plan doesn’t consider.

Bottom line: If you’re thinking of a debt management plan, talk to a bankruptcy attorney who can help you evaluate your options.

Maybe.  It depends.    First, who is it that is sending you a demand for payment?  If its your cable, water, phone, or some similar bill, then yeah, you don’t need me to tell you that you should probably pay them.  Of course, you probably didn’t find this page while wondering, “Should I pay my water bill this month?”

If the demand for payment is from your landlord, a professional service provider, such as your doctor or dentist, or a credit card company, then the answer is, “Generally, yes.”   It’s important to review any statement included with the demand for payment.  Did you order the products and/or services listed on the statement?  If you didn’t order any products or services listed on the statement, or if the product turned out defective, or the service wasn’t fulfilled, you may have a legitimate dispute.  Begin by calling the original seller and explaining the situation.    Most of the time any dispute ends here.

But really, if you’re still reading, then you’ve probably received a letter from a collection agency representing a credit card company.  Or a law office representing a collection agency.  Or a collection agency representing a medical office or hospital.  Or some combination of those.   Questions you should ask yourself are:  Is this a legitimate debt?   And even if it is a legitimate debt, can I afford to pay the amount the creditor says I owe?

If you are certain you do not owe the debt (reasons could include the fact you’ve paid it off or it wasn’t your debt to begin with), you should dispute the debt in writing with the person or company who sent you the notice.   If you are uncertain whether you owe any debt, you should still dispute the debt.  The collection agency will (may) send you a validation of debt, where they identify the name and address of the original creditor.

But even if you remember taking out a loan or line of credit from that original creditor, and even if you can fully afford to pay the debt being sought, there may still be reasons to not pay it.   For instance, the time limitations for the creditor to initiate judicial action (sue you and collect on the debt in court) may have expired.  If you’re in a position where  a creditor has no remaining legal avenues to collect on a debt, are you just going to pay them some money to make it go away? Maybe you do, but its more likely you don’t. [You may be thinking that you have a moral obligation to repay your debts.  Maybe you do.   However, I am an attorney and am not offering advice as to what you are morally obligated to do.]

If you are unsure what your legal rights are with regards to a debt you may or may not owe, you should speak with an attorney familiar with the Fair Debt Collections Practices Act who will be able to advise you.