Pros and Cons of a Debt Management Plan

Pros and Cons of a Debt Management Plan

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Do Creditors like Debt Management? Yes and no. Creditors would really prefer that debtors honour the terms of their original contracts and make loan repayments in full and on time. However, if the debtor is unable to do this, creditors want to maximize the amount that will be repaid and minimize the length during which repayment is made. Debt Management is a plan to repay all of the debt but at a slower rate and over a longer period of time than originally contracted. Since Debt Management promises full repayment of the debt, then naturally creditors would prefer that approach than if the debtor were to go bankrupt – in which case only a small amount of the debt is usually repaid. While an IVA is much preferable to bankruptcy creditors will usually recover less than half of the debt if the debtor goes this route.

Can you enter Debt Management if you are Solvent? Yes, you can. Debt Management is really an informal process with no comprehensive legislation governing the process. Although your income and assets may be sufficient to pay off your debts in full in accordance with the terms of your contracts with your creditors you might be unwilling to carry out some of the necessary actions to achieve this. You might for example be unwilling to sell your home. By entering Debt Management you might be able to manage your finances in a more orderly way and sell or re-mortgage your property at a time that suits you or when the market is more favourable or when re-mortgage terms are more reasonable.

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Can you keep your Debt Management Plan quiet? When you enter a Debt Management Plan, certain parties will be aware of it immediately and of these, the principal group is creditors. In fact, once you enter a Debt Mangement Plan, creditors may enter defaults on your credit files, if they have not done so already, since you have broken the terms of re-payment originally agreed. Who else needs to know about your DMP? Apart from the third party who is assisting you in your DMP – a Debt Management Company, the CCCS, CAB or Payplan – there is no need for anybody else to know. And there is no reason why your employer, your neighbours, your family or your friends should know about it. It may be impossible to keep your DMP from the notice of your spouse or partner since your plan will have to contain an income and expenditure statement regarding your family and you may have joint debts with your spouse or partner.

Can you combine Debt Management and an IVA? Not at the same time or by the same person. You could enter Debt Management for a period of time and subsequently enter an IVA. Why would anybody do this? One reason is that a debtor’s current circumstances could lack the stability needed for an IVA at present but that after a limited period that stability might be established. For example, a debtor might be undergoing divorce proceedings and there might be a lack of clarity relating to future income or in relation as to how the marital assets are to be divided. It might make sense for such a debtor to enter a Debt Management until the divorce and its settlement terms are finalized and then to enter into an IVA if the divorce should result in insolvency. Similarly, a debtor might be made redundant and decide to become self-employed as for example a taxi driver. Creditors would be likely to reject proposals for an IVA before any self employed trading history is established and thus a short duration Debt Management might be the best course.

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How does Ireland differ from the UK in regard to Personal Insolvency? In the UK there are many types of process available to the beleaguered debtor. They include Bankruptcy, Individual Voluntary Arrangement (IVA), Debt Relief Order (DRO), Debt Consolidation, Asset Sale & Debt Settlement and Property Remortgage & Debt Settlement as well as DMPs. It may even be that financial assistance is available from a member of your family or from one of your friends. In Ireland there is – well frankly, very little choice. Bankruptcy is not a real option there. Because it is so expensive and the sanctions are so draconian it is probably true to say that nobody in Ireland can afford to pursue bankruptcy, either their own or somebody else’s. Debt consolidation may be an option but if you are insolvent all debt consolidation does is to combine all your loans into one so that you have one monthly contractual payment rather than several. So unless you can go to family or friends for financial assistance or you can sell or remortgage assets then in Ireland the only avenue open to you if you are facing personal insolvency is Debt Management.

If you are struggling with your debts and need information onDebt Management contact us. We offer various debt Solutions to help you get out of debt.

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