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Debt Management Facts

A Debt Management Plan (DMP) is an informal flexible approach for resolving a person’s personal debt problems whereby creditors are repaid in full over a period of time. The rate at which creditors are paid is based on what the person can afford and thus a DMP can last for a long time, depending on the debtor’s personal circumstances. If you engage a Debt Management Company to assist you it can estimate the length of the arrangement, once it has received all your personal information.

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Clear debts with a DMP

Debt Management is a simple process which you can use to reduce and clear all your outstanding debts without the need to obtain any further credit than what you already have. If you choose to use a debt management company to assist you in this process, it will deal directly with your creditors and it will negotiate with your creditors on your behalf. It will seek the agreement of your creditors to drop all charges on your loan accounts and to freeze all interest. There are a number of benefits for you the debtor and for your creditors arising from your entering into and adhering to the terms of a debt management plan.

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Debt help with a DMP

Debt Management Plans (DMPs) are much in the news these days. Some negative aspects of the industry made the biggest headlines. Like any industry a few bad apples can give the barrel a bad name. In the UK the Office of Fair Trading (OFT) has already taken steps to deal with the bad apples. The most serious offences it has identified occurred in the areas of marketing and charging practices. In September 2010 it issued a warning to 129 debt management companies and followed that up with high profile enforcement action against the worst offenders. 

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Creditors refusing my DMP

The Office of Fair Trading (OFT) in September 2008 published Debt Management Guidance OFT366 in which it addressed the issue of creditors refusing to enter into negotiations with Debt Management Companies (DMC). This is what the OFT had to say in this publication:

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5 points about a DMP

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.

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Debt Management as an Option

The Merits of a DMP

Debtors in the UK who are encountering financial difficulties and who may be insolvent usually opt for one of the three principal solutions of Bankruptcy, an Individual Voluntary Arrangement (IVA) or a Debt Management Plan (DMP).

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DMP Perspectives

From the Viewpoint of Creditors

While creditors differ in how they view and treat Debt Management Plans, it is probably fair to say that creditors generally look on a Debt Management Plan (DMP) as the lesser of at least two evils. They would obviously prefer that debtors repaid their debts in full. However, if it is a straight choice between a DMP and bankruptcy, the DMP is a clear winner as far as creditors are concerned.

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IVA vs DMP

There are many available options for people who are struggling with debt. Debt management comes in many different forms, and can be hugely helpful with troublesome debts. However there are situations in which you need to use the law to protect yourself from bankruptcy, in which case using an IVA may the better option.

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DMP Facts

How long does a DMP last?

While a Debt Management Plan (DMP) can last quite a short time (a few years), most DMPs last much longer and a duration of ten years would not be unusual. For one in four people entering a DMP, the projected life would be in that sort of range. It really depends on the debtor’s personal circumstances. However, the Debt Management Company used by the debtor should be able to estimate the likely length of the arrangement, once it has received all the relevant information – amount of debts, income and expenditure and so on.

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Debt Management to IVA

Being in a Debt Management Plan (DMP) should not in itself prevent you from offering proposals to your creditors for an Individual Voluntary Arrangement (IVA).

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Is Debt Management Voluntary?

When a debtor offers a Debt Management Plan (DMP) to creditors, it is an entirely voluntary process from the debtor’s point of view. The debtor can expect to be making (reduced) payments to creditors for many years if he or she is to repay all debts in full, although some creditors may agree to reduce or forego interest and penalties for a period of time. Nevertheless although a DMP can be a relatively attractive solution for creditors the long duration is a big disadvantage for the debtor.

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Is a DMP Good?

When you run into financial difficulties and are unable to repay your creditors, one of the solutions you are likely to become aware of is to enter into a Debt Management Plan (DMP).

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DMP Questions

What is a Debt Management Plan?

A Debt Management Plan is a debt solution which is created in order to reduce and clear all your outstanding debts without obtaining further credit. You can create and execute such a plan yourself or use a Debt Management Company to deal directly with your creditors, negotiate on your behalf and seek to have charges dropped and interest frozen on your loans, credit cards and all other unsecured debts.

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Interest frozen in a DMP

Debt Management Plans are Voluntary

A Debt Management Plan (DMP) is a plan to repay all of your debt but at a slower rate and over a longer period of time than you agreed to do originally when you took out your loans or when you entered into your credit agreements. In other words you are suggesting to your creditors that you will repay your debts to them but not in accordance with the original terms and conditions.

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Should I do a DMP?

You do not need to be insolvent to enter into a Debt Management Plan. If you are insolvent you should be considering solutions such as bankruptcy or an individual voluntary arrangement (IVA). Having said that, let’s have a look at some key aspects of Debt Management.

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DMP and Bankruptcy compared

From the debtor’s point of view the attraction of BCY (Bankruptcy) is that in a relatively short period of time all debts can be dealt with and creditors removed from one’s back, so to speak. This is not the case in a DMP (Debt Management Plan), where there is little or no prospect of light at the end of the debt tunnel and creditors are not going to go away any time soon.

The Difference between Debt Management and Bankruptcy

Bankrupt debtors will be discharged from bankruptcy in one year although they may have to make payments to creditors via an income payments order controlled by their trustee for up to three years.

Not so in a DMP. Creditors do not write off any debt and indeed some creditors may continue to charge interest and penalties with no freeze on the total debt. The voluntary nature of a DMP is such that neither debtor nor creditors feel bound by its terms. Thus a DMP can last for many years.

Difference between DMP & IVA

From the debtor’s point of view the attraction of an IVA (Individual Voluntary Arrangement) is the length of the sentence, so to speak. In a DMP (Debt Management Plan), the sentence (i.e. the likely duration of the DMP) must seem to many debtors that it is going to last forever – without hope of parole.

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