DMPs

Debt Management Plans

How it works

You contact your creditors and negotiate an agreement to repay all or some of the debts.

Negotiated agreements may involve either or both of these:

(1) payments from your income

(2) payments from lump sums you receive, for example from an inheritance or from relatives. Your creditors may be prepared, at the start or later, to agree to write off part of what you owe them. If they do so, they should confirm this agreement in writing.

(1) Payments from income: you need to work out how much you can afford to repay, after allowing for your essential household and personal spending such as mortgage or rent, heating, utilities, and housekeeping. You should offer to share any extra income among all your creditors, based on the amounts you owe them. This means that all your creditors are offered their share of what you can afford. You should also ask your creditors to freeze any interest or charges. Your creditors will expect you to give them regular updates of your income
and expenditure so that they can see whether you can increase your payments.

(2) Payments from lump sums: you may make payments towards your debts from a lump sum you receive and which your creditors may agree to accept in settlement of what you owe – that is, they agree to write off the balance they are owed. However, if you do have extra income after paying your everyday expenses, they may expect you to make at least some payments from that as well.

If you can’t make payments temporarily, for example because of a short-term illness, creditors may agree to accept no payments or token payments of say £1 a month, but only for a limited period.

Pros

Fair and open way of sharing payments,

widely understood by creditors.

You can ask if you can reduce your payments if your situation gets worse or you face unexpected essential spending.

You do not need an advice agency to negotiate these payments for you. You can do it yourself or ask an advice agency for help with drawing up your personal budget
sheet and make offers to your creditors based on this.

Creditors may be prepared to write off the balance of what you owe after a period of time if: you have shown that you have madeevery effort to pay them back as much as you can, and
you have maintained regular payments to them.

Cons

Creditors may refuse to agree with what you propose (but it’s always worth asking them to reconsider) although they can’t refuse any payments you make to them.

Creditors may refuse to freeze interest or charges (but it’s worth asking them to reconsider).

If you can only afford small payments, they may not be enough even to cover interest or charges, and your debts will increase.

Creditors may refuse your proposal unless it’s made through an advice agency, which will have independently reviewed your circumstances. You can complain to the
Office of Fair Trading if this happens.

You remain liable to pay the full amount of your debts, although you may be able to persuade your creditors to agree to write off part, or even all of it, depending on your
circumstances.

Creditors could still take action against you, for example by getting a court judgment and then an order that creates a charge on your home, unless they have specifically agreed
not to do so in return for the payments made under the informal arrangement.

You are responsible for administering all the payments yourself and keeping creditors informed of your circumstances.

DMPs

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Debt Management Plans