Debt Management Plans and finishing early
Summary: This paper looks at the circumstances in which a Debt Management Plan (DMP) may finish early.
A DMP is an informal debt solution where a debtor is able to combine their unsecured debts in one monthly repayment plan. The plan often lasts for as long as the debt remains, but sometimes debtors decide to terminate the plan before all the debt is cleared. Of course in this instance, the remaining debt still needs to be repaid somehow unless the debtor is looking towards insolvency.
Change of Circumstance
No one can predict the future - and a DMP may be entered into in all good faith, but a reduction of income or an increase in outgoings can render the original plan unsustainable. It may be necessary to adapt the repayment level or end the plan altogether. Sometimes repayment is virtually impossible and debtor needs to assume responsibility of the debts and communicate with the creditors. It may be that for a period at least, a token payment of £1/mth needs to be made to the creditors.
Lump sum settlements
Sometimes the change of circumstances is good news rather than bad - and we win, inherit or are gifted/loaned a sum of money. It may be possible to clear the debt with the lump sum or offer settlement figures to each creditor to see if they will settle the whole debt with the one payment. This is something a DMP Company may do for you or something you could organise yourself.
Resuming contractual repayments
Some find that with increased income they want to end the repayment plan and resume original contractual repayments. It may give them an opportunity to rebuild their credit rating sooner than expected. Of course it may be that simply increasing the DMP repayment level would be more effective.
Sometimes people enter a DMP hoping to be able to afford repayments and find they simply cannot sustain the funding. Having tried this solution they have to go for insolvency involving either an IVA or Bankruptcy. At least they have tried to sort things before resorting to a declaration of insolvency.
Providing notice to the DMP Company
It should be possible to end a DMP at any point without penalty. Some companies require a notice period and it may be worth checking this with a Company before entering into the plan.