A debt management plan offers many people a reliable method of repaying their unsecured debts in full at a rate they can afford each month. But if you are struggling to maintain the repayments there is a chance a DMP can fail. Below we explain some available options that can be used to help avoid this happening.
What is a failing DMP?
A DMP is intended to help you manage repayments of unsecured debts to your creditors at an affordable rate, while still allowing you to pay for other essential living expenses. However, there are a few ways in which a DMP can start to fail, such as:
- You are struggling to maintain your DMP payments
- Priority debts such as mortgages/rent/gas/electricity etc. are going into arrears
- In order to meet DMP payments you are sacrificing on other living essentials
If you are experiencing any of the above there are some things you may be able to do to change the situation. To explore your options, contact the credit counselling agency and they may be able to review your current agreement.
Why can a DMP fail?
Everyone’s situation is different, which means there can be a number of reasons why a debt management plan can fail. This includes things like:
- Missed payments:
There may be a valid reason why you have missed a number of DMP payments. However, if the credit counselling agency dealing with your case is not informed of your situation, they may consider cancelling the agreement.
- Incorrect budget:
Sometimes you may experience a change in lifestyle that will affect the number of expenses you are committed to each month, impacting on how much you can afford to give to your DMP. Or, you may have forgotten to include some items in the original budget you submitted. Food, travel and bill costs can also fluctuate across the course of the year, so it is best to review your plan at least once every 12 months to ensure your budget is still manageable.
- Absent debts:
When submitting your DMP you must include all outstanding unsecured debts. Any that are not included are likely to expect you to pay the minimum monthly amount originally agreed. As a result, this could impact on your ability to pay both the outstanding debt and the amount agreed. It may be that you simply forgot to include the debt in the budget. If so, contact the agency as soon as possible to update the details.
- No DMP review:
The Financial Conduct Authority (FCA) state that credit counselling agencies must review your DMP with you at least once every 12 months. If the agency contact you for the review on a number of occasions and you fail to respond, they may consider cancelling the DMP.
- Difficulty managing money:
You must be realistic when putting together your budget, as you need to ensure you can stick to it once it begins. Overspending, or not following the limits set out in the budget could make it difficult for you to maintain your DMP payments.
- Taking out credit:
It may be stated in your DMP that you are not allowed to take out any additional credit while repaying your debts. If the agency or creditors discover new credit has been taken out, it could lead to them cancelling the agreement.
DMPs can also serve as a short-term solution
Sometimes a Debt management plan can be used to offer a reprieve from meeting minimum repayments on unsecured debts. In these scenarios, even though the DMP hasn’t been used to repay the full debt, it may not be seen as failed.
For example, if you are suddenly made redundant from your job, you may not have any other source of income, making it difficult to maintain minimum payments. You could ask for a DMP in the short-term until you find a new job and are able to restart paying the original amount.
If you are forced to take long-term sick leave or have to look after a family member who has fallen ill for a long period of time, this can also affect your income and require you to seek a DMP. This could also apply to anyone in the latter stages of pregnancy or to people who are facing homelessness.
The use of debt management plan here could help reduce the amount of money be being paid each month for a fixed period of time before you are able to return back to normal levels of payment at a later stage.
Will my debt management plan fail if the creditor refuses my proposal?
After you have put together a budget with the help of a credit counselling agency it will then have to be submitted to your creditors. While there is a chance they may refuse the proposal, in many cases they are willing to accept, as it provides an assurance they will receive all their money back from you.
However, if a creditor decides not to accept your proposal, this does not mean your DMP has failed. It could mean they feel the current offer can be improved based on the expenditure information you have provided.
Should this happen, you can continue to make the payment amount you are able to afford, even if the creditor believes you may be able to pay more. If they do not accept the money being sent through your DMP, contact your credit counselling agency for further advice.
If the creditor decides to pass the debt onto a debt collection agency you should be notified by letter about this change. Contact your credit counselling agency to inform them of this change so the payment is sent to the new company handling your debt.