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Common Questions about Debt Management Plans (DMP)

How does a DMP work?

A DMP or Debt Management Plan is an informal agreement with your creditors. It allows someone who is in financial difficulty to reduce the amount they pay to the creditors each month so that the payments fit within an affordable monthly budget. Using this solution will enable you to start repaying your creditors without having to borrow more and constantly Rob Peter to pay Paul. It is not a legally binding document however and has no fixed term. This means it can last several years as you have to pay back the full amount of your debt. It can be a useful temporary solution if that is what you need.

Which debts can be included in a DMP?

The following are typical examples of debts that can go into a DMP:

  • Credit Cards
  • Personal Loans
  • Catalogue Debts
  • Store Cards
  • Overdrafts
  • Outstanding balances after home or vehicle repossession
  • Business loans for which the client is personally responsible

There are some debts that would not go into a DMP:

  • Secured debts - mortgages /secured loans
  • Hire Purchase Agreements (e.g. car)
  • Rent and Council Tax arrears
  • Student Loans
  • Fines / Child maintenance arrears / Tax credit overpayments
  • Debts due to fraud or criminal activities

Can I keep some of my debts out of the DMP?

It is possible to keep certain debts out of the DMP, but this should only be done under the advice of an authorised debt solution provider.

As a general rule you should deal with all your creditors equally and not favour one over another. This could lead to problems when negotiating with creditors as they may feel you have not acted reasonably to them.

Furthermore if you are keeping a debt out of the DMP so that you can continue borrowing money (e.g. a credit card) you are just getting further into debt and ultimately may face bankruptcy.

It is better to deal with all the debts in one place and ensure there is enough money left for all household expenses so that further borrowing is not required.

How much will I pay each month?

You will only pay what you can afford each month.

Basically you pay what is called your Disposable Income that is the money you have left after you have paid for all your essential and reasonable living costs.

Creditors do have limits to what they accept on spending, as of course they will get less money if you are spending more on living costs, but provided the costs are justifiable and not excessive these can be presented to creditors.

Is my house safe? Is my car safe?

Yes. A DMP is an informal arrangement, so provided you keep up your mortgage payments and car HP payments (if appropriate) then these will not be at risk as they can be in formal bankruptcy procedures.

However it should be noted that creditors have the right to apply through the courts to have unsecured debts turned into secured debts against a property (ie your home). This is quite common now as naturally creditors are keen to get back as much of the money as they can. We can help you deal with this if it occurs.

It should be noted that if either your mortgage or car HP payments are very high you may want to consider taking advice on ways to reduce them as this will help you clear your unsecured debts quicker.

Will all my creditors agree to a DMP?

Usually yes, but they do not have to. Often they do because they are not writing off any debt for you and can see from the income and expenses provided that you cannot afford any more. The Financial Conduct Authority that regulates the creditors activity has made it clear that creditors should not turn down any payments made under such an offer.

Whilst creditors do not have to agree, all financial institutions have been advised to look sympathetically on such applications and be prepared to accept offers which are based on sharing the available funds on a pro rata basis.

Note: Whilst creditors may agree to the DMP, they do not have to agree to freeze interest charges. In the majority of cases they do, but there is no guarantee and they are not obliged to. It seems however that common sense prevails in the most part and creditors are keen to support debtors by accepting the regular payments and freezing interest and further charges.

How long does it last?

There is no time limit on a DMP as the debt is paid in full. This means that it can last several years, but in practice it is a plan that exists until other arrangements can be made or the situation improves so that it is not needed any more.

If you choose a DMP to deal with your debts, you need to be clear on why it is best for you. If you are unsure, or think your situation is not going to get any better and the DMP looks like it will last over 10 or 15 years you should regularly review this with your debt solution provider to ensure you are in the right solution for you.

How long does it take to set up a DMP?

It is very quick, as there is no creditor consultation period like an IVA. You can have a plan set up in a matter of a few weeks.

What Happens When I Stop Paying My Creditors?

It is likely that you will be contacted by phone or letter when you miss the normal contractual payments. Just explain that you are in a DMP and that all calls and letters should be directed to your debt solution provider. You must forward all letters to your debt solution provider, though you can keep your monthly statements from your bank or credit card.

Once your plan is place the creditors will contact you much less as they see the regular payments coming in. However they can call you and you should expect this from time to time.

You will probably receive default notices on some or all of your debts; this is a formal notice that you have broken the contractual agreement which is normal when taking on a DMP. You must forward these to your debt solution provider.

What if my circumstances change during the DMP and I cannot make the payments?

You should contact your debt solution provider as soon as you think that your situation is changing for better or worse, they will then advise on what your options are.

A DMP is flexible so you may be able to change your offers of payment if/when you need to. If you reduce your offer of payment bear in mind that the creditor may not continue to freeze interest if this has been agreed, so it is better to have a realistic monthly payment from the start.

Will the creditors freeze the interest on my debts?

The creditors do not have to freeze interest and at first may refuse to do this. Indeed if you have had no problems at all and have missed no payments up to this point then they may not see why they need to.

However many creditors do freeze the interest even if it takes a few months whilst they realise you are unable to pay the regular payments. You will find that many of the debts will be passed to third party collection agencies who work very hard to freeze all interest and charges, though again this is not guaranteed.

My bank is a creditor; will I be allowed a bank account?

You will probably need to open a new bank account, but your debt solution provider will confirm this. You cannot usually bank with a creditor that you have a debt with in the DMP.

You will need a basic account only that has no overdraft facility. Most banks offer a basic account.

How much does the DMP cost?

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.

Will this affect my credit rating?

All credit activity is recorded on your credit file for 6 years. As such this will affect your ability to obtain credit. Further borrowing is not permitted during a DMP so in some ways this acts as a measure to stop things from getting worse.

Your credit file will record missed payments while you are in the DMP as you are not paying the original agreed amounts, which will affect your ability to get credit. However, you may have already missed payments and actually it is important that you do not borrow any more money during any successful debt plan.

You can rebuild your credit score in future and once your IVA is completed you will be able to get credit again, but this may take time. Often the IVA process really helps people to budget within their means so that in future they are much better equipped to manage their finances without needing credit.

Who knows that I have a DMP is it made public?

This is a private arrangement between you and your creditors and is not made public in any way. This is one of the reasons people choose a DMP; where they do not want family members, employers or friends to know what happened.

Important information

This website provides information only. Vincent Bond & Co does not provide debt advice. If you wish to apply for any of the debt solutions outlined in this website Vincent Bond will with your permission pass your details to a licenced debt solution provider. You will then be called by an advisor who will discuss your options in more detail. During this telephone call and subsequent communication, you will be dealing with a debt solutions partner and not Vincent Bond & Co Ltd. Fees may be charged by the debt solution provider if you enter a debt solution with them. Vincent Bond will not charge you a fee, but may receive a referral fee from the debt solution provider if you agree to use their services.

We take reasonable care to ensure that the information on this website accurate. However, the user of this website should not rely on the information or take its accuracy for granted. Vincent Bond & Co does not accept liability or responsibility for and gives no warranty as to the accuracy of the information on this website. The provision of the information on this website does not constitute debt advice or recommendation and Vincent Bond will not accept any liability for any action taken by a user relying on the information provided in the website. Use of the information in this website is at the users own risk. Your statutory rights are not effected by this disclaimer.

The Insolvency Service has issued a guide to dealing with creditors for those struggling with debt: In debt - dealing with your creditors.

To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.