No, because with a Debt Management Plan you're showing a good faith effort to repay the debt through voluntarily seeking credit counseling and setting up a budget for repayment of the entire balance due.
Under bankruptcy you are either wiping out the debt entirely or setting up a payment plan to pay less than the balance owed. Your credit report may contain a notation that a certain account is under such a plan, but if you come to an agreement with a creditor and then hold up your end of the bargain, your credit scores may not suffer.
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How much a Debt Management plan affects your credit score will depend upon whether your lender marks your account as late. In some cases that will not be because the lender is unwilling to work with you, but because he is unable to alter the way his billing and reporting system is set up.
For instance, your lender may agree to a reduced interest rate or reduced payment amount, but if the software he uses won't allow the change, it might automatically report your payments as insufficient.
Another occurrence that could hurt your credit scores is getting involved with the wrong credit counseling agency. While you make payments to the agency to disperse, not all agencies send out payments on time. Every late payment will appear on your credit report and will lower your scores.
Be aware that the best, most reputable credit counseling agencies are free. They will help you explore your options and decide if a Debt Management Plan is right for you, or if bankruptcy is the only answer. If you do choose bankruptcy, then you'll also need a qualified bankruptcy attorney.
Bankruptcy will remain on your credit report for 7 to 10 years, depending upon which type of filing you qualify for. By contrast, a Debt Management Plan will be erased from your credit report as soon as you have things under control and exit the plan. Even if you've posted some late payments as a result of the bookkeeping glitches we mentioned, those fade over time and lose significance when followed by on-time payments.
This alone could be a deciding factor if you plan to buy a home any time within the next 7 years. Having the bankruptcy on your report will keep your scores low and could cause you to pay as much as a couple percentage points more in interest, if you can even get a loan.
In today's tight mortgage market, only those with the best scores are qualifying, so it is in your best interests to make decisions now that will affect your credit report and credit scores most favorably over time.
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