Debt Management Plans

What is a Debt Management Plan (DMP)?
What are the advantages of a Debt Management Plan (DMP)?
What are the disadvantages of a Debt Management Plan (DMP)?
What debts can be included in a Debt Management Plan (DMP)?

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What is a Debt Management Plan?

A debt management plan is an informal agreement between you and your creditors whereby you offer and they agree to accept a reduced payment in respect of the contractual monthly payments.

Your surplus monthly income is normally divided between your creditors on a pro rata basis and paid to them each month until your debt is cleared in full.

Many people employ the services of a debt management company to negotiate with their creditors on their behalf and administer the monthly payments. They make one monthly payment to the debt management company who will then distribute the money (less any management fees) to the creditors. Top of Page

What are the advantages of a Debt Management Plan?

• There is no advertisement of the DMP
• It is a simple informal agreement between you and your creditors
• You pay what you can afford each month
• Your creditors may agree to freeze interest
• Your creditors will not require a full investigation of your assets and liabilities and your home will not usually be affected Top of Page

What are the disadvantages of a Debt Management Plan?

It is not legally binding on your creditors who may decide that they will not accept the DMP or change their minds at a later date

• Your creditors are not obliged to freeze interest
• There is no debt write off and so you must pay your debts back in full
• Your creditors can still take legal action against you to recover their debts.
• If you are not meeting your contractual monthly payments your credit rating could still be affected. Top of Page

What debts can I include in a Debt Management Plan?

The following debts can be included in a DMP:

• Bank overdrafts
• Credit cards
• Loans
• Any shortfall from a secured debt (for example if your house or car has been repossessed)
• Loans from friends and family

The following debts cannot be included in a DMP and you must continue to make payments to them.

• Mortgages
• Loans secured on your property
• Car hire purchase agreements
• Rent arrears (though you can include rent arrears from a previous property)
• CSA or child maintenance arrears
• Student loans
• Utility bills
• Council tax bills
• Overpayment of benefits
• County Court Judgements
• Magistrates court fines (e.g. speeding tickets)
• Debts to HM Revenue & Customs Top of Page