Debt Management

• The basis of debt management is to create a budget using your current resources that allows you to meet your current expenses while paying off your accrued unsecured debt. Debt management is used to control unsecured debt like credit cards because secured debt, such as mortgages and utilities, cannot be minimized and eliminated in the short term. Credit counseling companies can help you negotiate with your creditors to get more favorable terms regarding your debt.
  
  

Chapter 13 Bankruptcy

• A Chapter 13 bankruptcy or wage earner's plan is similar in many ways to a debt management plan. In this form of bankruptcy, you work with your creditors and the U.S. courts to put together a repayment plan that satisfies all parties. According to U.S. Courts, a Chapter 13 bankruptcy acts like "a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection."
  
  

Secured Debt

• One of the attractions of filing a Chapter 13 bankruptcy is that you can protect your home, which a debt management plan can't do. A Chapter 13 bankruptcy can help you save your home from foreclosure by stopping foreclosure proceedings. The bankruptcy can take your mortgage payments and extend them, which could lower your monthly payment.
  
  

Third Party Protection

• If you have debt that is shared with someone who is keeping up with her payments or someone who co-signed a loan for you, Chapter 13 may be able to protect her. For instance, your bankruptcy shouldn't affect a loan co-signer's credit score. A debt management plan can't promise this.
  
  

Credit

• A bankruptcy will show up on your credit report for seven years and it will negatively affect your ability to secure future loans. If you do get loans, the credit limits will be lower and the interest rates higher until you can remove the bankruptcy from your report. With a debt management plan, you will see some impact on your report, but the overall effect on your credit score won't be as large as it would be with a bankruptcy.
  
  

Costs

• Working with a credit counseling agency will be more expensive than working with the courts. Credit counseling agencies generally charge an administrative fee to help you with your credit problem. A bankruptcy costs $235 for a case filing fee (in 2010) and a $39 miscellaneous administrative fee. This will be less costly to the debtor.