Solution - DMP
What is a DMP?
- A DMP or 'Debt Management Plan' is an informal agreement with creditors to make reduced affordable monthly payments.
- It is based on a realistic budget that allows a debtor to pay all their priority bills and normal living expenses and pay what is left to their creditors.
- Though not obliged to and not guaranteed, most creditors will agree to reduce or freeze interest so that the money the debtor pays reduces their debt more quickly.
- This solution is available to people living in England, Wales or Northern Ireland. If you live in Scotland you may be able to apply for a Debt Arrangement Scheme (DAS) which is a similar solution, but it's important to note that it has different benefits, risks and fees associated with it.
- Want to make regular reduced payments as your contractual payments are simply unaffordable and there is a danger of getting further and further into debt.
- Need flexibility because the near future is uncertain. Income, changes in family circumstances or perhaps health mean a plan is needed that deals with the debts temporarily until things are more settled.
- Have modest and reasonable living costs.
- Be able to budget carefully during the DMP.
- Feel that the other debt solutions are not suitable for for some reason or there is a feeling of obligation to pay the debt back in full rather than trying to have some written off.
- Want or need to avoid the formal insolvency routes of an IVA or Bankruptcy which can affect some jobs and a family home as well as being legally binding for a period of time.
- One realistic affordable monthly payment.
- The debtor doesn't deal with their creditors that stress is taken away.
- Interest and charges are often frozen though this is not guaranteed.
- It is an informal agreement, so it can be changed when or if needed.
- It is discreet; no one is made aware other than the creditors.
- No need to borrow more money each month to meet basic living costs.
- An asset or home will not be at risk provided mortgage payments are kept up to date.
- No debt is written off, the debt is paid in full.
- As the monthly payments are reduced it takes longer to pay off the debts.
- It will affect your ability to obtain credit in the future, though this can improve once you have paid your debts in full. All credit history is recorded on the debtor's credit file for 6 years.
- Creditors are not under any legal obligation to suspend interest or late payment charges.
- Secured debts (i.e. mortgages and car HP) and Crown Debts such as Council Tax cannot be included in a DMP.
Fees may be charged by a DMP provider, but these will be taken from the normal monthly payment into the plan.
If fees are charged, they would cover the initial set up of the plan, negotiation with creditors, budget analysis, reviews and the management of all creditor communications, payments in and distributions out to creditors.
There are organisations that will provide 'free to client' services. Some of these are funded by creditors and others are charitable organisations.
Debtors will be fully informed by their authorised debt solution providers of any fees that are applicable before signing an agreement.
Important considerations for debtors considering a debt solution:
- Fees may be charged but these will be fully explained before any agreement is made to proceed.
- Stopping payments to creditors may create further arrears.
- It is likely that the ability to get credit will be affected.
- In compliance with Distance Selling Regulations there is a 14 day cooling off period in which a plan can be cancelled.
- Not all solutions involve debt write off
- Assets and property could be at risk with some solutions.
- Conditions apply and each application will be subject to acceptance and eligibility.
DMP Step by Step Guide
You give permission to be contacted by an authorised debt management company as you wish to find out if you can apply for a DMP.
We gather some basic information from you including personal details, details of your creditors and your income and expenditures. This will be forwarded to the debt management company so they can contact you and provide you with regulated debt advice.
The debt management company will then call you and explain fully all of the options you have available including the DMP. They will also check through the supporting paperwork you provide proving your situation; this would include documents for proof of income, bank statements and proof of identity.
The debt management company will negotiate with your creditors having created a budget that outlines how much you can pay each month. They will also request that interest and charges be frozen, though it is not guaranteed that creditors will do this.
The debt management company will manage all communications with your creditors as well as your payments in and disbursements out to creditors each month. They will conduct annual reviews to check for changes in your situation and where necessary re-advise you.
You continue to pay a single payment to the debt management company until the debt is paid in full or until your situation changes. You may be contacted by the creditors directly, but you can refer them to the debt management company.
Creditors are often open to settlement offers that allow you to write off some of your debt informally. The debt management company can propose settlements to one or more of your creditors if you have a lump sum.