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.
From the point of view of creditors, a DMP is also a voluntary process. No creditor is obliged to agree to participate in a DMP offered by a debtor. Creditors would much prefer if the debtor stuck to the original terms and conditions of the contract which was entered into freely when the loan or credit agreement was taken out. Furthermore, any creditor can exit from the DMP without notice and seek to recover the debt by other legitimate means such as taking out a charging order on the debtor’s property or petitioning for the debtor’s bankruptcy. In the real world however, creditors recognize that a debtor offering a DMP is making a genuine attempt to address his or her indebtedness. A DMP usually has a negative effect on a debtor’s credit rating so that while the process is entirely voluntary, it is one that both debtor and creditors wish was unnecessary.