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Debt Management Plans

An IVA is not the right debt solution for many people. Either due to the risks associated with an IVA for some people, or because they do not meet the IVA qualification criteria, many people look to other debt solution options. Our advice team is provided by Bright Oak Ltd, one of the first debt management plan providers in the UK to be approved under the Debt Management Protocol. We’re therefore well-placed to advise you about the DMP option.

A debt management plan is a primary alternative to an IVA. A DMP allows an individual to repay their debts at a rate that they can afford (provided that creditors are prepared to accept the reduced payments). A debt management company can handle creditor negotiations on behalf of a client.

The starting point for a debt management plan (also known as a “DMP”) is very similar to that for an IVA. A budget is created that lists household income and expenditure. This is used to work out how much someone can afford to pay towards their debts each month. Provided that the affordable amount is less than the existing contractual repayment amounts a DMP may be viable and appropriate.  

The client would make a single payment each month, of this affordable amount, to the debt management company. Because most of their surplus income will usually be paid to the DMP a client will have a restricted personal budget while they remain in a plan.

Once instructed by you, the debt management company will write to your creditors. They will set out how much you can afford to pay towards your debts in total. They will also set out details of all of your other creditors. Each creditor will be offered their fair share of the amount that you can afford (larger debts will be offered larger monthly payments). Each creditor will be asked to confirm their acceptance of this reduced payment and also that they consider freezing any further interest or charges. Creditors do not have to agree to this. However, the success rates in this respect are quite high in our experience.

 The debt management company will make payments on your behalf to your creditors each month. They are required to pass your payment on to your creditors within five days of receiving your money.

Creditors do not have to accept debt management plans and, unlike an IVA, legal recovery action remains a possibility and some creditors may not agree to stop any further interest and charges. If interest is not frozen, repaying the debts over a longer period will lead to an increase to the total amount to be repaid.

As with other debt solutions, debt management is likely to damage your credit rating. When you cease paying your creditors directly (and especially if you are paying an upfront fee) you are likely to fall into arrears (or your existing arrears may increase). Entering into a debt management plan may lead to an increase in the overall amount payable.

However, a debt management plan is a much less restrictive and less formal debt solution than an IVA. Should your circumstances improve or worsen it is a straightforward process to quickly amend your monthly payment. Unlike an IVA you will be free to bring the DMP to an end at any moment should you choose to do so.

As well as being more flexible than an IVA, a debt management plan may appeal to some people for whom particular IVA risks exist. Examples include:

  • People with significant assets (such as equity in a home) which would be taken into account in an IVA. In extreme cases the assets can become threatened by an IVA.

  • Anyone that expects that they might come into a significant sum, perhaps by way of inheritance, during the course of the next few years.

  • Those who for professional reasons cannot become insolvent. IVA’s and bankruptcies are insolvencies and some contracts/professions for not allow for this to happen.

  • Ethical and/or moral considerations. Some people choose to repay all of the money that they owe, irrespective of how long it will take. An IVA will generally result in creditors not being repaid the full amount of the debt.

  • People who seek flexibility, perhaps because they foresee a likelihood that their circumstances may improve or worsen significantly in the near future. A debt management plan can be amended or stopped with relative ease.

  • Privacy can be a consideration for some people. Anyone who is a joint homeowner will not be able to start an IVA without the other owner being aware. A public register of IVA’s is also kept upon which personal details are recorded.

IVAAdviceForum.co.uk is connected (by ownership) to Bright Oak Ltd. Bright Oak is a provider of debt management plans. If you would like to discuss a DMP with them you can use the contact form below or call them on 0800 0437222.

You can find more information about Bright Oak’s fees at: DMP Fees.

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