Developing a Repayment Plan

Debt settlement repayment plans are a debt settlement tool that can be useful in order to avoid litigation. Alternatively, if a creditor does file a suit, or if you declare Chapter 13 bankruptcy, the court may create a judicially mandated debt repayment plan. In general, all debt repayment plans require you to pay a certain amount at certain times in order to satisfy debt. This amount may be less then the full amount that you owed, or it may be the full amount that you owed but you may be able to repay it over a longer period of time than normal or without incurring as much interest or fees. The exact terms of a debt repayment plan depend on the type of debt repayment plan and the result of judicial mandate or negotiations with creditors.

Debt Management Plans

Credit counseling services and debt settlement attorneys often work with creditors to create a debt repayment plan, called a Debt Management Plan. The specific terms of these plans vary, but usually they involve creating a special arrangement with your creditor’s that allows you to pay on a different structure than normal monthly payments.  This may involve making a set payment for a certain duration of time, just like standard credit card or debt payments, but the terms will be different than originally agreed to when the debt accrued.

In some cases, a debt repayment plan will allow you to repay only a portion of the debt you originally owed. For creditor’s, it may be advantageous to agree to this only if you feel there is no other way to collect on the account. In most cases, if you are going to settle debt for less than what is owed, as a creditor it is preferable to require a lump sum payment. However, if a debtor does not have the cash to make a single one-time settlement payment, arranging a debt repayment plan to allow them to pay a portion of their debts over time is preferable to bankruptcy or to selling the debt to a debt collection service.

For debtor’s, a debt repayment plan can be advantageous because it saves them money and makes debt payments more manageable. Often, credit counselors or debt collection attorneys are able to negotiate a debt repayment plan that reduces the total amount paid back. Even if a debt repayment plan does not involve settling your debt for less than what you owe, you can still obtain significant savings by arranging a lower interest rate or reducing or removing late fees.

Consumer’s need to be aware of the fact that while most debt settlement companies are reliable and have an excellent relationship with creditors that allows for the facilitation of negotiations, other debt settlement companies are less ethical and honest. Some unscrupulous debt settlement companies may charge you fees for creation of a debt management plan, or charge you fees to facilitate the plan which involves little more than collecting a payment form you and sending it on to your creditor’s. When selecting a debt settlement attorney or a debt settlement firm, make sure you understand the fees up front and check references and qualifications.

Negotiating a Debt Management Plan

Whether a debtor and creditor are negotiating directly with each other or using facilitators such as credit counseling services or attorneys, issues can arise during negotiations. Debtors and creditors have adverse interests here. Debtors are usually trying to save money, while creditors are trying to recover as much of the debt as possible.

To facilitate negotiations, creditors should request information on the customer’s finances.  This will allow creditor’s to get a better idea of how much they can reasonably expect to recover and how likely it is that a debtor will declare bankruptcy. Once a creditor understands what a debtor is actually capable of paying, it makes it easier to achieve an agreement that would actually be feasible for the debtor to agree to. Creditors should attempt to speak reasonably with debtors during this process in order to encourage negotiation, rather than using tactics of threats and intimidation.

Debtor’s may not wish to provide financial information to creditors, or may be overwhelmed by their debts and given the choice between bankruptcy or debt settlement, the latter would be picked. However, debtors must remember that under the stricter bankruptcy laws, they may not qualify for Chapter 7 bankruptcy, and under Chapter 13 bankruptcy their debts will not be liquidated but instead they will have a judicially mandated repayment plan. 

Finding Legal Help

The best way to negotiate a debt settlement is to use qualified professionals. If both a creditor and debtor have legal counsel, they can make wise decisions to determine if a settlement and repayment plan is in their best interests.