Your back is against the wall. You have tried to pay your bills on time and service your debt but you simply do not make enough money to do both. Now, you have creditors who have placed some of your accounts in collection and your gut tells you that the situation isn’t going to get any better. What do you do now?

If you feel that you are losing control of your ability to service your debt, there are some solutions available to you that involve bankruptcy and credit counseling. Let’s explore benefits and drawbacks of each below:


There are two different types of bankruptcy that an individual should consider using: (1) Chapter 7 Bankruptcy, and (2) Chapter 13 Bankruptcy.

Filing a Chapter 7 Bankruptcy allows you relief from unsecured debts such as credit card debt and medical debt. Some debts that are excluded under a Chapter 7 Bankruptcy are:

  1. Income tax debt
  2. Student loans
  3. Child support
  4. Spousal support

Filing a Chapter 13 Bankruptcy involves adhering to a court-approved payment plan that has been proposed by both yourself and your attorney. The payment plan would require you to pay back some or all of the debt that you owe. At a high level, this type of bankruptcy option offers:

  1. Some financial relief
  2. Restructures your payment amount
  3. Buys you some time

Creditors do have certain rights during the bankruptcy process and they simply cannot refuse to go along with the process. However, there are some ancillary benefits to the bankruptcy process that include a fresh start to your credit history and the debts that are forgiven in bankruptcy are not considered taxable income.


Credit Counseling is another avenue for seeking relief from your debt.

Credit Counselors or Counseling Agencies work on your behalf to negotiate and streamline debt payments into an affordable payment plan. In addition, reputable organizes are able to provide advice on money management, budgeting, and ongoing education to stay out of future debt.

One area of concern regarding the use of Credit Counseling organizations is the fees associated with their services. Some organizations ask for voluntary contributions while others charge fees that are sometimes hidden.


One tool that is used by Credit Counselors is called a Debt Management Plan (DMP). A DMP allows a customer to make regular payments that are used to service outstanding unsecured debt according to a payment schedule that has been crafted by a credit counselor and agreed to by creditors.


Yet another option under the umbrella of Credit Counseling is debt settlement. In a debt settlement program the customer makes regular payments towards a “lump sum” amount that would be used as payment made to their creditors to settle their outstanding debt.

There are, however, some risks and concerns with using a debt settlement program. Such as:

  1. Getting participation in the plan from each and every creditor matters. If one creditor fails to agree to the plan, they can still pursue litigation against you regardless if all of your other creditors agree to participate.
  2. You may be asked to stop making payments towards your debt. With this decision comes the trust you have instilled in our credit counseling organization. It is strongly recommended that if you pursue this type of option that you are absolutely certain about the processes and accuracy by which this type of plan will be executed. A failure to do so may result in damaging your credit score and beyond.
  3. Bankruptcy may be a faster and easier solution if you are so far in debt that a payment plan would ultimately fail.
  4. Your creditors will send you a 1099 for debt that is forgiven. Thus, this is shown as income that is required to be claimed on your tax return. Consult your tax advisor or CPA to determine the exact impact something like this could have on your tax situation.

What To Do Next?

The above are general statements and may not apply to each and every specific situation. Because each person’s debt situation is different, we always encourage you to contact us or call (248) 350-8220 where your situation can be reviewed by an attorney that specializes in bankruptcy law.

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