Debt Advice: How Do Debt Management Plans Work?
The best thing to do, if you are having problems repaying your debt, is to contact a company which is offering free debt advice. The expert advice on debt that they give you should help you out of your situation in the best possible way. One of the things they might present to you is a debt management plan, so we’ll be going through what they are here.
What is a Debt Management Plan?
A debt management plan is an informal arrangement which is negotiated with your creditors on your behalf in order to reduce your monthly payments to a manageable amount. There is no obligation for them to accept this but they usually will as their only other option is going to be to take legal action which does not guarantee to get them anything better.
In a sense, as well as getting the amount that you have to pay each month reduced, you should also be able to get how much you owe reduced as well. That’s because good negotiates are usually able to get any interest rates or charges that you have been accumulating reduced, or sometimes even frozen. So there could be a freeze on the amount you owe.
The way that a debt management plan is structured is also very useful. That’s because you are only going to have to make a single payment each month, instead of having to make lots of payments, one to each of your creditors. The single payment goes to the debt advice company you chose to negotiate for you, and then they will handle the distribution of it to your creditors.
Something you have to take in to account though is that there is no guarantee that your creditors will actually accept a debt management plan. If there is only one or two holding out then an IVA, in which only 75% of your creditors have to agree to the plan for all of them to be bound to it, might be appropriate. If you can’t get reductions even then though, then your creditors will probably take legal action.
Legal Action by Creditors
Usually though your creditors will be willing to enter in to an informal arrangement because the legal action that they can take is not going to get them anything better. At least not at first. So if they think that you will keep up with the payments that you are offering they will probably accept that as an informal arrangement.
If you want to know the details of what action a creditor can take against you from a legal stand point, the best thing to do, again, is get in touch with a company providing free debt advice. They’ll be able to tell you the kind of action that you can expect to be taken by your creditors.
Before a creditor can petition the court to take legal action against you, they first have to issue with a Default Notice. This will inform you of what you are going to have to do if you want to avoid legal action being taken. And that usually means that you are going to have 7-14 days to pay off all of the debt that you owe them.
When the amount of time you have been given to pay off all of your outstanding debt has run out, that is when your creditors will be able to petition the court in order to get a County Court Judgement. All that happens if they are successful though, at least at first, is that you will have to pay just what you can afford from the disposable income you have left after essential living costs. It is only if you miss a payment on that when further action can be taken, for example getting bailiffs round.
As you can see then, at first all that your creditors will get with a CCJ is exactly what you are probably offering them with a debt management plan. It is for that reason that most creditors will feel compelled to accept a reduced amount, if that is all that you can afford.
Freddie Watson is very knowledgeable in all different financial matters. He writes regularly at http://www.debtadvice.net a place you can learn much more about debt advice.