Friday, 29 April 2022
The final article in our series looks at whether a Debt Management Plan or Debt Relief Order is the right option for you.
What is a Debt Management Plan (“DMP”)?
A Debt Management Plan (DMP) is an informal agreement with your creditors to pay a specific amount over a specified period of time. A payment is made to an approved intermediary who in turn issues small interim payments to your creditors.
Is a Debt Management Plan right for you?
• A DMP allows you to make one affordable monthly payment to creditors over a period of time with no upfront fees. In some instances creditors may freeze interest, although this is assessed on a creditor by creditor basis
• As a DMP is an informal procedure, your credit rating is not adversely affected.
However….
• Creditors usually expect payment in full in a DMP and the process can be drawn out to get to the end point of full payment. In some instances we have saw DMPs stretching as far as 25 years
• There is no protection from the Court as it is an informal settlement. It is therefore not a binding agreement.
• Not all creditors may agree to participate in the plan leaving you open to action being taken against you.
What is a Debt Relief Order?
A Debt Relief Order (DRO) is a formal insolvency process and is progressed through an approved intermediary. They are designed for individuals with a lower income and minimal assets. It is a method of dealing with all your debts in one go. A DRO requires a one off set payment of £90 to set up and is progressed through an approved intermediary. After successful completion of a DRO the debts are legally written off.
Is a Debt Relief Order Right for me?
In order to be eligible for a DRO, there is certain criteria which must be met. Although various requirements are the same in Northern Ireland as in England & Wales, there are also some key differences. A summary of the requirements in each jurisdiction is outlined below:
The benefits of entering into a DRO include:
• Quick and easy to set up.
• Eligible debts to be written off in 12 months.
• Binds all creditors and no further action can be taken under the order.
• A one off payment of £90 is required to set up the DRO making it an affordable option to individuals in debt.
However…
• Homeowners are not eligible to apply
• Your details will be registered on a public register
• You cannot be a director of a company whilst in a DRO
• The DRO will be registered on your credit file.
If you wish to discuss the above options or any other other debt solutions outlined in the previous articles, contact one of our advisors today.
