Your Creditors might be Agreeable to a Debt Management Plan
While creditors would prefer debtors to honour the terms of their original contracts and repay their debts in full and on time they recognise that in the real world some borrowers will fall by the wayside and threaten to default. In such a scenario, creditors want to maximise the amount that they can get back and minimise the time that will take.
A Debt Management Plan (DMP) is a plan to repay all of the debt but at a slower rate and over a longer period of time than originally contracted. Since the DMP promises full repayment of the debt, it is distinctly a better solution than bankruptcy, from the point of view of the creditor, since in bankruptcy only a small amount of debt is usually repaid. A DMP is even preferable to an IVA where creditors usually recover less than half of the debt and sometimes much less.
You don’t have to be insolvent to enter a DMP
Debt Management is really an informal process with no comprehensive legislation governing the process. Although your income and assets may be sufficient to pay off your debts in full in accordance with the terms of your contracts with your creditors you might be unwilling to carry out some of the necessary actions to achieve this. You might not want to sell your home, for example. By entering a DMP you might be able to manage your finances in a more orderly way and sell or re-mortgage your property at a time that suits you or when the market is more favourable or when re-mortgage terms are more reasonable. To enter an IVA or become bankrupt on the other hand, you have to be insolvent.
Neighbours, friends and family need not learn about your DMP
While there are no guarantees, there is a good chance that you can keep the news of your IVA from others. Assuming that your neighbours, friends and family members are not creditors of yours and provided that you behave discreetly, then you can be reasonably confident that you can keep you DMP quiet. Commercial debt management service providers as well as CCCS, CAB and Payplan all offer complete confidentiality and privacy in their dealings with you and no information should be disclosed by them to any third parties such as your neighbours, friends, family or your employer. Only your creditors will be contacted and you will have to agree in advance before even that can happen. Normal practice is to authorise your DMP service provider to contact your creditors and to negotiate with them on your behalf.
You can start off with a DMP and later enter into an IVA
You could enter a DMP for a period of time and subsequently enter into an IVA. Why would anybody do this? One reason is that a debtor’s current circumstances could lack the stability needed for an IVA at present but that after a limited period that stability might be established. Alternatively your solvency status might not be clear initially but you feel that you will become insolvent in the foreseeable future. Or again, you might be undergoing divorce proceedings and there might be a lack of clarity relating to future income or in relation as to how the marital assets are to be divided. It might make sense you in such circumstances to enter into a DMP until the divorce and its settlement terms are finalised and then to enter into an IVA if the divorce should result in insolvency. Similarly, you might be made redundant and decide to become self-employed as, for example, a taxi driver. Creditors would be likely to reject proposals for an IVA before any self employed trading history is established and thus a short duration DMP might be the best initial course of action.
A DMP might be the only solution available to you at present
In certain jurisdictions such as Ireland, a DMP might be the only financial solution available to you. While bankruptcy is theoretically available as an option in Ireland, the cost of the process and the draconian sanctions attached to it make it an impractical route for personal insolvency. Only a handful of bankruptcies occur each year in Ireland. There is no process remotely similar to an IVA available to Irish citizens living in Ireland. While the government funded Money Advice and Budgeting Service (MABS) does offer advice to debtors in Ireland, that organisation does not have the resources to manage debt management plans to the same extent as commercial DMP providers. The new Irish Government may introduce legislation in line with the recommendations contained in the final report on personal insolvency published at the end of last year by the Law Reform Commission, and such legislation may include an IVA type solution and a controlled DMP type solution. However, it is not envisaged that Irish bankruptcy law will be modernised any time soon.