Debt management plans

From Wikipedia, the free encyclopedia

In the UK, the Debt Management Plan (DMP) is an informal debt repayment arrangement between a debtor and their creditors.

Debt Management Plans can be proposed by the debtor themself or by a third party debt management organisation. Essentially, Debt Management Plans are supposed to represent a 'trade off' between the debtor and their creditors with respect of an acknowledged outstanding debt that cannot be paid within the contractual agreements signed by the debtor originally.

For many people in the UK a Debt Management Plan is seen to be a way in which they can offer to repay what is owed to their creditors at a repayment rate that reflects the realistic affordability of the debtor.

However, as creditors are under no obligation to accept or agree to the terms offered by a debtor or their debt management representative many DMPs do not actually achieve debt resolution for the debtor. This is largely due to the fact that the balance of power lies completely with creditors when deciding whether to reduce interest charges or late payment fees. The debtor and their representatives have no power to influence the decision of the creditors and this ultimately results in many debtors facing higher debt levels upon entering a DMP due to interest and late payments fees continuing to accrue.

In the UK many debt advisors are now promoting the Individual Voluntary Arrangement (IVA) as a better alternative to both Debt Management Plans and bankruptcy as IVAs offer debtors a legally binding agreement with their creditors.