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.

Are debts frozen in a DMP?

In a DMP you pay off a fixed amount each month and this is divided – on a pro rata basis – among the creditors, less whatever the Debt Management Company charges. However none of the debt is written off by creditors and so the DMP continues until every creditor is paid off in full. On top of that, creditors are under no obligation to stop charging the debtor in the DMP interest and indeed other penalties and charges. The debt is not frozen as it would be for example in an Individual Voluntary Arrangement (IVA).

These are two of the main reasons why debtors shy away from entering into a DMP – the possible long duration and the non-freezing of debts. That is not to say that a DMP is not suitable for many people who encounter financial difficulties. It may very well be the best – or indeed only – solution for certain people. Or it may be the best initial solution. For example, it may be that it suits someone to enter a DMP for say six months and then propose an IVA to creditors. However it does appear that about 30% of people who are currently in an IVA or are bankrupt had previously been in a DMP. That seems to be a rather high percentage and suggests that all available options were not always considered or that the first choice solution was not always the right decision. 

What are the Advantages of Debt Management?

It’s an informal and flexible arrangement to suit the debtor’s circumstances and needs.

1. Payments are tailor made in line with what the debtor can afford.
2. The debtor does not have to release equity from property.
3. The debtor repays all unsecured debts in a DMP.
4. Creditors prefer Debt Management to other processes for resolving financial difficulties.
5. The debtor’s details are not put on the Insolvency Register.
6. The debtor does not have to be insolvent to enter a DMP, in contrast to an IVA or Bankruptcy.

What are the alternatives to a Debt Management Plan?

There are many alternative courses of action for the debtor in financial difficulty. All options should be considered before deciding which way to go. Some of the most common alternatives are Bankruptcy, Individual Voluntary Arrangement, Debt Relief Order, Debt Consolidation, Asset Sale & Debt Settlement and Property Remortgage & Debt Settlement. It may even be that financial assistance is available to the debtor from family or friends.