| Index »Debt Management Plans (DMP) |
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| DMP - The Basics |
| If you are struggling to pay credit cards, loans, or store cards and you would like someone to help sort out your payments and talk to creditors for you and you would like to be able to pay one affordable amount to all your creditors each month , then a Debt Management Plan (DMP) may be just the right solution for you. If bankruptcy or an IVA are not suitable options you may be able to make informal arrangements with your creditors by negotiating. |
| In a nutshell DMP will have the following features. |
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Ideally suited for debts between £3,000 - £15,000 |
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Simple to set up |
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Allows reduced, realistic payments to be made over a number of years |
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Allows you to regain control of their finances |
| A Debt Management Company doesn't buy the debt from your original creditors nor do they give you money to cover your existing debts. Companies that arrange the DMPs help you to manage your debts by offering a reduced payment to each of your creditors and then negotiate to freeze interest and charges. Creditors aren't obliged to freeze interest and charges but some companies that arrange the DMPs negotiate a deal with the creditors to put in place a workable DMPs, the creditors are often more cooperative as they see that the debtor is making every effort to clear their outstanding debts. |
| By entering into a DMP, your creditors can issue a default notice as you are defaulting on your original credit agreement. If you receive a default it doesn't automatically mean the creditor is going to take legal action. The default will appear on your credit file for 6 years from the date it was issued. |
| CCJs don't prevent you entering into a DMP. You will be required to provide details of your CCJ during your financial assessment. Dept Management Plan is a debt solution for anyone who has unsecured debts that they can't afford to repay. ie, This is a repayment schedule for unsecured debts. Secured debts can't be included in DMPs because any payments on secured debts that aren't met in full, can lead to the goods being repossessed. |
| Your secured debts i.e. mortgage and car HP can't be included in a DMP, if you are unable to make the contractual payments to your secured debts you are at risk of losing the item to which the loan is secured on e.g. a car or house. |
| Therefore, a DMP will only help you make reduced payments to your unsecured creditors, therefore the debts that can be included are: |
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Personal loans (loans taken to purchase cars are fine but Hire Purchase (HP) agreements cannot be included) |
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Credit cards |
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Store cards |
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Catalogues |
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Overdrafts |
| Debt Management plans allow your client to make the repayments they can realistically afford once essential living costs have been taken into account. The client makes one monthly payment to a insolvency pracitioner which is distributed to all creditors involved. All interest and charges will be frozen, and typically the new payment amount under a debt management plan is half the amount the client is currently paying, but will depend on the individual circumstances. |
| A Debt Management Plan is a good option for people who can afford to make regular payments to their creditors and want an easy, hassle free way to pay. A DMP requires you to have a surplus income each month and owe money to more than one creditor.
Therefore this method allows you to make reduced payments to your creditors based on what you can afford, which will last until the existing debt is cleared or your circumstances improve. |
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| How Do You Calculate What Is A Disposable Income? |
| Add up all your household income. Then add up all your essential expenses, like rent, mortgage, household bills, food, travel, child care. Deduct the total expenses from the gross income. The figure you get is the is your disposable income.
If your disposable income is £100 or more, a Debt Management Plan might be a good option for you. |
| To enter into a DMP you are required to live within a budget which will be discussed with you openly at the outset. The Income and expenditure details are submitted to your creditors. It is in your interest to show your creditors you are prepared to make some sacrifices to help repay your debts. If the creditors feel that you are spending responsibly by not overspending and buying luxuries they will be more likely to freeze interest and charges. |
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| DMP And Your Bank Account |
| If you have a current account with a company you owe money to, you will be required to open a new bank account. This is not only the case with a DMP but you should change your bank account if you are going to make reduced payments to a company that you also bank with. |
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| Duration Of DMP |
| The length of your DMP depends on your individual situation. It also depends on your level of debt and monthly surplus when creditors freeze interest and charges, the length of the DMP can be dramatically reduced. If you are experiencing further financial problems and cannot afford the payments then you should contact your DMP provider so that they can negotiate a new structure and payment plan for you based on your present circumstances. |
| This depends on your affordability. For eg. If you owe £10,000 and you can afford to pay £10o per calendar month the DMP will last for just over 8 years (100 months). This applies only if the payments are maintained each month and the creditors freeze interest for the duration of the plan. Your DMP can be completed sooner if your monthly payments can be increased as a result of changes in your circumstances. You are free to stop the DMP at any time by giving notice to the company that initially arranged the DMP which will in turn inform all of your creditors. |
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| DMP And Your Credit Rating |
| If you are already in financial difficulty your credit rating is likely to have been affected already. Your credit rating will be affected whenever the full contractual payment isn't made and a breach of credit agreement occurs regardless of how much it is (even if the payment is just a few pounds short). Some companies that arrange the DMP can however negotiate a plan and help clear your debt quicker by getting interest and charges frozen, so your credit rating will be effected for a shorter period. Therefore the DMP will not show on your credit file. |
| Whilst the Dept Management Plan is being arranged your creditors are still entitled to contact you directly until the DMP is put in place. All correspondence you receive from your creditors whilst the arrangement is being set up should be sent to the company that arranges the DMP. You should try not to obtain any more credit whilst in the DMP. It can be considered fraudulent if you take out credit when you know you can't repay it. The debt management plan will make sure you have enough money to live on, so you shouldn't need to take out any more credit. There are of course exceptions, such as a company credit card where you are not liable for the payments, but you should declare the details of these to your case officer at the DPM Company. |
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| Your Home And DMP |
| A DMP is an alternative to bankruptcy and isn't legally binding so you won't lose your home if you continue to make the agreed payments into your DMP. |
| Advantages Of DMP |
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You pay one monthly payment to DMP provider who distribute all of your payment on a pro-rata basis to your creditors |
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Interest and charges are often frozen, so the debt doesn't increase. |
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You only pay what you can afford, based on your income and outgoings. |
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You will no longer need to negotiate with your creditors on your own. |
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| Disadvantages Of DMP |
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It isn't legally binding, so creditors can proceed with court action against you. |
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If you are only making a small monthly payment and have a high level of debt, it could take several years to clear your debt. |
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| Please note that the topics covered in this section are a general guide and should not be taken as any recommendation or solution. It is not a full and authoritative statement of the law. Suitability of any solution will depend on your personal circumstances. Please seek appropriate expert advice before relying on them. The information contained in this section is of a general nature and no assurance of accuracy can be given. The Author does not render legal or insolvency services.They are subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK. |
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