Debt Management Plan
What is a Debt Management Plan?
A Debt Management Plan (DMP) is simply an informal arrangement for someone who cannot afford to pay all the instalments on their debts in full. Usually it will be done through an independent third party such as a Citizens Advice Bureau or possibly a commercial provider. A summary of your household income and outgoings will be prepared and sent to each creditor together with a breakdown of all the debts.
You will have to pay to the person operating the Plan the amount of your spare income on a regular basis, usually monthly, and they will divide it up in proportion to your debts and pay the money to the creditors.
The Plan will continue in this way until either the creditors are paid in full or until they get fed up with it and start to press for more.
Advantages of a DMP
It has the similar advantage of a Voluntary Arrangement in that you only need to make one payment per month towards your creditors.
Quite often the creditors will freeze or even stop the interest altogether.
As with Bankruptcy and an IVA you only pay what you can afford.
You have help from the Plan provider negotiating with your creditors.
Disadvantages of a DMP
Unlike an IVA or bankruptcy, you have to keep paying until you clear all the debts in full, sometimes with interest.
Unlike bankruptcy or an IVA, a DMP will not stop the telephone calls, visits from debt collectors, or the letters and threats.
Like bankruptcy or an IVA, a DMP will not stop your credit rating from being affected.
A DMP is not legally binding on creditors so even if they agree to it for a few months or even years, at any time any creditor could suddenly unfreeze the interest, start chasing you for the debt again and even take legal proceedings against you. If that were to happen then of course you would not be able to keep up the payments to the others and the Plan would collapse, possibly owing more money than when you started because of the interest. The greater the number of creditors you have the bigger the chance is that one of them will lose patience at some time or other.
Although there has been some attempt by the Government to try to draft changes to the law, at present DMPs are unregulated and care needs to be taken before choosing someone to help you. If you do not use a Licensed Insolvency Practitioner then you are taking a risk with your money.
Who is a DMP best for?
A DMP therefore is therefore most suited to people with a small number of debts that are capable of being cleared in a relatively short period of time.
There are however other circumstances in which a DMP may be suitable and it is best to take professional advice before making any decision.