Debt Management Plan (DMP)
People can often find themselves in difficulty maintaining payments towards their credit cards and loans etc after essential expenditure and priority debts are accounted for. If you have problems maintaining payments towards credit cards, catalogues, loans and other non-priority creditors then a Debt Management Plan could be a suitable long or short term solution / option.
A Debt Management Plan is an informal arrangement where after payments for essential living costs and arrangements have been made with priority creditors, you make reduced, pro-rata or token offers to non-priority debts out of any available disposable income (all creditors should be treated the same)
- How does a Debt Management Plan work?
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- Details of all priority & non-priority creditors, debts, income & expenditure need to be gathered together and made available
- Arrangements need to be made with any relevant priority creditors where normal payments and any arrears are concerned.
- Contact non-priority creditors (usually by a holding letter) informing them of the problems you have with payments, request account details and ask for a temporary hold on any recovery action / interest / charges.
- When all account balances have been received / assumed an accurate Financial Statement needs to be drafted.
- A Financial Statement & offer letters then need to be sent to all non-priority creditors and await their response.
- Payments made / follow up letters sent to creditors where relevant
- What are Priority Debts?
What are Priority Debts?
The law states that some debts are more important than others and give creditors different options to recover their money. These are called priority debts and should always be dealt with and paid before less important non-priority debt. (Always check any insurance cover re: priority debts).
Examples of Priority Creditors
- Rent / mortgage / secured loans / charging order (loss of home)
- Council Tax (attach to earnings / bailiffs / prison)
- Magistrates Court Fines (bailiffs / prison)
- Electricity / Gas (pre-payment meter / disconnection)
- T.V. Licence (fine / prison)
- Income Tax (bailiffs / bankruptcy / other)
- Hire Purchase (loss of car / goods)
- Child Maintenance (attach to earnings / bailiffs / prison)
- Court Judgments (attach to earnings / charging order / bailiffs)
- Telephone (disconnection)
- What are Non-Priority Debts?
What are Non-Priority Debts?
These include numerous types of debts where the creditor does not have the extra powers of recovery (for example they cannot take your home or seize goods). This means that they will not have to be treated as a priority and that offers will only be made after arrangements have been agreed with your priority creditors.
Common Examples of Non-Priority Debts
- Credit Cards
- Catalogues
- Unsecured Bank & Building Society Loans
- Personal Loans (including Doorstep Lenders)
- Overdrafts
- Book Clubs
- Water and sewage charge arrears
- Parking penalties issued by Local Authorities
If you have problems paying your non-priority creditors you should always check if you have any relevant insurance cover on your accounts.
Others Which May Be Non-Priority (depending on circumstances)
- Rent Arrears / Mortgage Shortfalls (previous properties)
- Electricity & Gas (previous property or old supplier)
- Hire Purchase (where goods have been re-possessed)
- Telephone (disconnected accounts land & mobiles)
- Rental Agreements (old accounts, TV / Sky etc)
- Clubs (example health / slimming)
- Benefit Overpayments (where benefit no longer paid and not subject to a DWP Direct Earning Attachment pilot scheme DEA)
- Social Fund Loans (where benefit no longer paid and not subject to a DWP Direct Earning Attachment pilot scheme DEA)
Some Advantages
- recognised / fair procedure for dealing with your debts
- backing from the Office of Fair Trading (OFT) guidelines on debt collection
- flexible procedure / solution if there are changes in circumstances
- can be implemented and self administered via assisted & self help means
- creditors may consider part or full balance write offs after a period of time, if:
- you have made every effort to pay back what you can
- you maintain regular payments
- you have serious health problems
- your circumstances are unlikely to improve
- temporary solution while awaiting improvement in circumstances etc or for a long term formal debt option such as bankruptcy, Debt Relief Order (DRO), IVA.
Some Disadvantages
- accounts defaulted / credit ratings damaged
- on occasions, creditors may be reluctant to formally agree to proposals and offers. However they should not refuse any payments you make and would be expected to follow the OFT guidelines on debt collection
- interest and charges may still be added or re-instated
- accounts may be passed to internal collection departments and agencies however again these would be expected to follow OFT guidelines on debt collection
- creditors may still take legal & recovery action in the form of court judgments, charging orders, statutory demands & threatened bankruptcy etc however there are the OFT guidelines on debt collection
- possible long and unrealistic timescale for debts to be cleared
Information on Debt Collection, Debt Management, Harassment, Complaints etc.
- FCA Handbook
- Archived links to Office of Fair Trading (OFT) guidelines on debt collection / debt management etc
- Harassment by Creditors
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If you feel that a creditor or collection agency is not dealing with your account fairly or harassing you then there are guidelines and laws in place (see below)
- Complaints
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If you have any problems with creditors & collection agencies, feel that you are not being treated fair, guidelines are not being followed, then there are procedures and agencies by which and to which to complain (see below).
Starting a DMP
If a Debt Management Plan is the right solution, then there are various options:
- Administer your own (Assisted Self-Help)
There is a free assisted self help Debt Management Plan here on nedcab.cabmoney.org.uk but other alternatives include:
- Free DMP providers
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- StepChange (CCCS)
0800 138 1111 - Payplan
0800 280 2816
- StepChange (CCCS)
- Fee charging companies
There are also numerous fee charging Debt Management businesses and companies offering this type of service. If you do decide to use one of these businesses or companies, we would strongly advise that you check the terms, conditions, fees (including up front ones) and any hidden charges as there is evidence of misleading advice in this sector.
The Financial Conduct Authority (FCA) website has a register where you can check whether a debt adviser (or lender) has the correct licence.
- For best results, please answer all questions before continuing
- If you want to explore the other options for dealing with debt you can read about other options
What does this mean?