Debt management plans can help anyone who wishes to repay their debts, cannot afford the normal repayments, but can afford to pay a reduced amount towards the debts each month.
There are a wide range of different reasons why people choose debt management plans to deal with their debt worries. Common situations include:
- Repaying debt without resorting to formal insolvency (such as bankruptcy or an IVA). Formal insolvency can threaten assets (such as a home), can be inflexible and can cause significant issues for those in certain professions. Debt management plans can provide a more flexible and informal solution for many.
- A measure to deal with short or medium term payment problems. Some people are expecting a work promotion, waiting for their home to sell, waiting for work overtime or bonuses to come back, or waiting for expenditure to significantly reduce when children grow up and leave the home. Debt management plans can be used to manage such situations until such time that debt affordability is restored.
- A measure to protect a home. In bankruptcy it would be expected that any equity held in a home should be paid towards the debts. This can often require the sale of the home. In an IVA any equity held in the home will be considered towards the end of the IVA. This often results in a major remortgage taking place. This can mean that much unsecured debt is carried well beyond the end of the IVA but now it’s secured on your home.
- A way to protect professional status. Formal insolvency (bankruptcy or IVA) can be challenging or impossible for certain professionals. Debt management plans are “informal” agreements with creditors and therefore do not generally present the same problems.
- The means to conform with moral, ethical or religious considerations. A great many people want to repay the money that they have borrowed (which is unlikely to be fully the case in bankruptcy or an IVA). Where it is impossible to continue making full debt repayments debt management plans can enable the repayment of the full amount at an affordable rate.
- Where flexibility is needed. Debt management plans are often preferred to IVA’s where people are uncertain about what the future will hold for them financially. This particularly applies to the self-employed who can be subject to wide increases and decreases in income. Debt management plans are flexible in the way that they can readily be altered to meet changing circumstances.
- For reasons of secrecy. For personal reasons some people are unwilling to share their debt concerns with immediate family. Joint homeowners are highly unlikely to be able to proceed with bankruptcy or an IVA without the co-owner being aware for example. We strongly encourage openness in this scenario but where people feel that is not possible a Debt Management Plan may be helpful.
- Because other options are either unavailable or unacceptable. Homeowners with an equity amount greater than their unsecured debts cannot normally enter into IVA’s. In the same scenario a bankruptcy would generally result in the sale of the home which most people try to avoid. Creditors have fixed criteria by which they will or will not accept IVA’s which in recent years have excluded more and more people from this solution. In such circumstances Debt Management Plans may be the best solution.