Debt Management Plan

What is a Debt Management Plan?

A Debt Management Plan or DMP is an informal agreement made by your debt management company with your creditors to repay unsecured debts. The company can arrange for you to make a single monthly repayment which will be distributed to your creditors under the terms of the agreement with them. As part of your agreement with your creditors, the company may request that interest and penalty charges are stopped or reduced so that your final repayment is fixed and does not increase.

You can apply for a Debt management Plan if:-

1. You are a tenant or own a property
2. You have a monthly surplus household income (that is after all domestic expenditure)
3. You have unsecured debts which generally can be fully repaid within 10 years although this not an automatic bar to DMP
4. You are not already bankrupt or subject to bankruptcy restrictions
5. You are not already in an Individual Voluntary Arrangement (IVA)

Advantages of Debt Manangement Plan

1. You do not need to pay DMP fees as there are organisations that will administer a DMP free of charge
2. You make a payment that you can afford, subject to periodic reviews
3. You can withdraw from the DMP at any time, without financial penalty
4. A Debt Management Plan can be viewed as a short term mechanism to assist you during unexpected and unplanned times of financial hardship ie redundancy or prolonged illness before resuming full contractual payments to creditors
5. Generally creditors agree to suspend interest and penalties if agreed payments are made timely
6. Creditors are paid in full at the end of the Debt Management Plan
7. You can still apply for a DRO, bankruptcy or an Individual Voluntary Arrangement (IVA) at any time during the DMP period.

Disadvantages of Debt Management Plan

1. A Debt Management Plan is not legally binding
2. If you pay fees to a DMP company the DMP period will be much longer
3. If you payments are small, the debt may not be repaid within a reasonable period of time
4. Creditors are free to take whatever legal action is available to them during the term of the DMP.
5. Interest is not always frozen by all creditors and may continue to accrue at penal rates
6. Early withdrawal from the Debt Management Plan may result in the debts you owe on exit being more than when you entered the plan
7. It is expected that you will pay your creditors in full
8. Delayed or missed payments into the plan will cause you to go further into arrears with your creditors and may lead to your debts increasing and creditors taking further action to recover the sums owed to them
9. Your credit rating is affected

Disclaimer
X-debt does not administer any type of debt management plan or informal arrangement and if you wish to consider or stay on a debt management plan there are sources of free advice and services. The Money Advice Service has information about organisations that can help you with DMP.