Debt Management Plans and Creditors
Date posted: January 20, 2014 by Paddy Byrne
A Debt Management Plan is a plan to help people to manage and repay their unsecured debts when they encounter financial problems. A Debt Management Plan involves working out a monthly budget on which the debtor can live with surplus cash being used to pay off debts. The Debt Management Plan can be organized by the debtor himself or by a third party. Most Debt Management Plans are organized by third parties such as a debt management company or by a charity such as the CCCS. The debt management companies charge a fee for their services while CCCS costs are financed by creditors.
Regardless of who organizes the Debt Management Plan, the attitude of creditors is crucial to its conduct and success. Research shows that creditors adopt a fairly standard approach to Debt Management Plan proposals and generally assess all such proposals in the same way. Creditors decide to accept or reject a Debt Management Plan based on whether the repayment offer is reasonable. The test of reasonableness is based on a review of the debtor’s income and expenditure.
While some creditors agree to freeze interest and penalties once a Debt Management Plan is in place, this practice is by no means universal among creditors and even where applied is not guaranteed to continue indefinitely. Creditors decide on this matter on a case by case basis and the policy of individual creditors in relation to this matter is not entirely transparent. This lack of predictability on the part of creditors makes it difficult to estimate the expected duration of the Debt Management Plan.
However, creditors generally enjoy good working relationships with debt management companies, particularly the larger and long established companies. One of creditors’ main concerns is to ensure that debtors obtain best advice when considering entering a Debt Management Plan. Their other obvious concern is that fees charged by debt management companies should be reasonable, since fees deducted reduce the monthly payment to creditors and extend the duration of the Debt Management Plan.