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If your bills get out of control, consider a debt repayment plan only when you own substantial assets that you would lose in a Chapter 7 filing. Experience shows that more than 50 percent of the people who enter debt management plans fail to successfully complete them. Consequently, they continue to botch up their credit and merely postpone their day of reckoning.

On the other hand, if you want to rebuild your credit as quickly and securely as possible, Chapter 7 can make sense. After you obtain a Chapter 7 discharge, you're debt free, except possibly for past-due taxes, student loans, and some types of judgments. Instead of plugging $300 to $3,000 a month into paying off debt, you can put that money into savings. Within a year or two, you'll be much further ahead financially than if you were still stuck in a payoff plan. As to credit profile, cash in the bank and no (or very limited) debt give you a better credit profile. Fannie and Freddie will each consider Chapter 7 bankrupts two years after discharge. FHA/VA will consider such persons after one year. In other words, when you're really drowning in debt, Chapter 7 can put you on the path to mortgage approval and financial stability faster and more effectively than a debt repayment plan.

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