The flexibility of a Debt Management Plan (DMP)
Summary: The flexibility of a Debt Management Plan (DMP) - This article explores the informal nature of a DMP and the characteristics which enable the debtor to have choices within a DMP.
One of the real benefits of a DMP is its flexibility. Unlike an IVA or bankruptcy, a DMP allows the debtor more freedom to settle their debts. In an insolvency situation (IVA, bankruptcy) the creditors have a fixed period to recover as much of their debt as they can. The principle behind a DMP is that the debtor is repaying their debt in full and therefore the pressure of the fixed period is removed and creditors may be slightly more relaxed about the repayment process and the paperwork required.
Creditors clearly want their debt back as quickly as possible. A plan that suggests the repayment may take more than 10 years (and sometimes much longer!), will not be as warmly received as one that will take less time. However as long as creditors are receiving something - they are usually willing to refrain from further action. Obviously the higher the repayment level of the DMP payment, the less time it will take to clear the debt. But this does provide the debtor with some flexibility in repayment levels.
Usually it is possible (and desirable) to increase the repayment level as opportunity allows. It may be that a DMP starts cautiously as it's important that the debtor is able to meet all financial commitments without recourse to further borrowing. But with excess funds or changes of circumstance, increasing the repayment level will significantly reduce the length of the plan.
Lump sum payments
For some, there are opportunities to inject a lump sum payment into the DMP. It may be a bonus or the end of a particular job for someone self-employed - or even a windfall - that provides such an opportunity. If there is a pressing need in the home, it is not a legal requirement that the debtor does make all the lump sum available, but obviously it is another way to clear the debt quicker. In fact, creditors may be willing to settle a debt early with the offer of a lump sum thus making the lump sum clear debt of a greater value.
Ending the plan
Because a DMP is an informal arrangement a debtor is entitled to end the plan whenever they want. Of course, creditors will want to know what the alternative arrangements are going to be, but the debtor has no obligation to the DMP company to continue the plan indefinitely.