Debt management plans (DMP) explained
A typical DMP combines a debtors unsecured debts into a single more affordable monthly repayment which is then paid to creditors on a pro-rata basis over an agreed period of time. This payment is carefully calculated by a trained debt consultant who, with the debtor’s assistance will thoroughly review their current financial position before suggesting a figure that will put the debtor back in financial control.
The monthly amount offered to creditors is determined by the amount that the debtor can reasonably afford after their essential costs of living have been deducted from their income. This will ensure that the debtor never gets into any arrears or misses priority commitments such as their mortgage or rent, car finance, utility bills and council tax, etc.
A debt management company sets out the offer being made to creditors. This includes the monthly payment and over what period of time. It will explain to creditors the debtor’s circumstances and highlight the advantages to them in accepting the offer being made. The debt management company request that creditors agree to stop any further interest accruing on the outstanding debts and to stop any further charges and asks them not to take any legal or any other action to recover the debt providing the debtor keeps to the terms set out in their DMP.