What is a Debt Management Plan (DMP)?
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- A DMP is an informal arrangement between a debtor and his/her creditors.
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- The plan is not legally binding on the creditors.
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- Any creditor, at any time, can take piecemeal action against a debtor – such as issuing a writ, instructing bailiffs, or issuing a bankruptcy petition.
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- The debtor pays an affordable monthly sum.
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- The plan is administered by a debt management firm who charge a fee.
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- DMPs do not work for business debt – including HMRC.
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- The DMP has no time limit and will continue until debts have been paid in full.
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- A DMP could be recommended by an Insolvency Practitioner (and managed) if he considered this the best option to deal with the debtor’s financial position.
Do they Work?
They can. A DMP is suitable as a short term measure to deal with a short term problem – illness, loss of job, separation and the like. If a DMP lasts for over 6 months the question should be asked – Is this the right plan for the debtor?
Sue called last week and explained she was in a DMP. Sue had around £60,000 of unsecured debt, was paying £600 per month into the DMP and had equity in her property.
Bankruptcy was not an option because of the property equity, but the circumstances were crying out for an IVA (Individual Voluntary Arrangement). Why carry on making payments of £600 indefinitely (Sue would never clear the interest alone) whereas with an IVA she could be debt free in 5 years? We are now proceeding with an IVA for Sue where interest payments will be frozen and she will repay 45% of what is outstanding to her creditors over the period of the IVA – that’s a much more realistic solution!
So if you become aware of anyone in a DMP, please ask them to call us to check the plan is right for them – there wouldn’t be a charge and we’d be only too pleased to help.
