"Borrowers can arrange DMPs themselves, but they will generally approach a debt management company that will arrange a plan with creditors, often for a fee."
It’s no wonder then that Citizens Advice dealt with more than 2,700 new debt problems every day in December 2017 according to The Money Charity.
One way for borrowers, who are struggling with debt, to manage the problem and rectify the situation is by entering a Debt Management Plan.
A DMP is an agreement between an individual and their creditors to pay debts and is typically used when borrowers can only afford to pay less than their contractual repayments each month.
With a DMP a borrower should ultimately repay the debts in full, and so this type of arrangement is very different to an IVA, which is a form of insolvency where a percentage of the debt is written off. As such, IVAs are entered on to the insolvency register, but a DMP will only show on a credit file if one of the participating creditors chooses to enter it directly.
Borrowers can arrange DMPs themselves, but they will generally approach a debt management company that will arrange a plan with creditors, often for a fee.
The debt management company will work with the borrower to understand full details of their income, financial commitments and household expenses to work out a realistic monthly payment. The company will then attempt to agree a reduced monthly payment with each of the creditors.
Creditors do not have to agree to the DMP but will often decide that it is better to receive reduced amounts on a regular basis through the DMP, rather than irregular payments direct from the borrower. Each month, the borrower then makes the agreed payments to the debt management company, which in turn shares the money out between the creditors.
The stats indicate that there is an increasing chance you will encounter a client looking for a mortgage, while in an active DMP. These cases might be interesting to place but they are certainly not impossible.
There are lenders that will take the view that a borrower who has successfully maintained payments on a plan for a year or more has demonstrated a determination to rehabilitate their finances. And, as lenders in this market tend to assess affordability using the original contractual loan payments as outgoings rather than the agreed DMP monthly payments, there is a good indication that an individual who has successfully maintained a plan is also back on track from an affordability perspective.
A Debt Management Plan is one tool that consumers can use to tackle periods of financial difficulty. It can make placing a case more interesting but, if you talk to the right lenders, that interesting case should convert to a very satisfied client.
