What is a Debt Management Plan?
A Debt Management Plan (DMP) is an informal agreement between you (the Customer) and the people who you owe money to (the Creditors). Unlike an IVA, (see our IVA pages on this website), a DMP is not a legally binding contract. This means that at any time, your creditors can change their mind and decide that they no longer want to support your DMP. If this happens then there is nothing to stop them from taking legal action against you to recover the amount owed which can include instructing bailiffs or even making you bankrupt.
The purpose is for you to reach an agreement with your creditors that you will pay an affordable amount into your DMP each month, which is then paid on to your creditors by the debt management company, once they have deducted their agreed fee. Essentially it is a way of paying off your debts in full through affordable monthly payments.
It is possible for the debt management company to try to agree with creditors that they freeze any charges and interest whilst you are making payments into a DMP although this is not something which your creditors are legally obliged to do. If the debt management company is unable to agree this with your creditors then it will take longer to pay off your debts.
Who can benefit from a Debt Management Plan?
A DMP is available to all individuals, sole traders and people in partnerships who are experiencing creditor pressure such as demands and threats of legal action.
Whilst a DMP does have its draw backs such as it isn’t legally binding and DMPs can run into a significant number of years until you have paid back all of your debts in full (unlike with an IVA where the normal maximum duration of an IVA is typically five years – the balance of your IVA debts then being written off), they are a useful tool for those people who wish to avoid a formal insolvency procedure such as an IVA.
If you are struggling to pay your debts and don’t have enough surplus money to keep all of your creditors happy, if your debts are causing you stress, then a DMP could be for you.
How does a Debt Management Plan work?
A debt management company will review your personal financial position and what you can afford to pay into your DMP each month. They will then contact all of your creditors on your behalf to seek their agreement to the DMP. Once up and running you will pay the agreed monthly amount into your DMP, the DMP company will take their fee and then pass on the remaining balance to your creditors.
Your creditors do not have to accept the terms of your DMP and can continue to take whatever appropriate legal action is available to them to enforce collection of the debt.
You will generally pay money into your DMP until you have paid all of your creditors in full, there is usually no prospect of writing off any element of your debts through a DMP.
Interested? Get in touch today!
So, you are interested in a DMP and you think that it might be the right option for you?
Whilst we at DebtChampion are licensed insolvency practitioners and experts in advising on personal insolvency matters, unfortunately as DMPs are not a formal insolvency procedure, they are not covered by our regulatory bodies (these being the Insolvency Practitioners Association and the Institute of Chartered Accountants in England & Wales). DMPs come under the regulation of the Financial Conduct Authority (FCA) and, as such we are unable to discuss and advise you in relation to DMPs.
However, we are able to discuss your personal financial position generally in reasonable contemplation of a formal insolvency procedure such as an IVA. It is only at the point when it becomes apparent that a DMP is the right option for you / you do not want an IVA that we are unable to talk to you any further. In those instances, we can then, if you like, refer you to an appropriately regulated DMP provider who will be able to assist you.
If you use our Save Me request form on our home page, this will allow us to give you best advice, by phone at a convenient time for you.
Alternatively, you can give us a call on 0808 164 3750 (Freephone) and we will be happy to have a chat with you.
If you think that you have already made up your mind and want to go down the DMP route then we can either recommend a regulated trusted partner or, alternatively, you can always contact the Money Advice Service which provides free and impartial advice, set up by the government – you can find their website by clicking the link https://www.moneyadviceservice.org.uk/en.