Debt management plans (DMPs)

In short

• A DMP is an informal agreement to repay your debts through one monthly payment you can afford.
• Many DMPs leave council tax out. The DMPs we have access to can include council tax arrears, as long as your council agrees.
• This year's council tax is not included. You keep paying it to the council as normal.
• Nothing is written off. You repay the debts in full, just more slowly.
• It is not legally binding. Creditors do not have to agree, or to freeze interest, although many do.

A debt management plan, or DMP, is an informal agreement between you and the people you owe. Instead of paying each one separately, you make one monthly payment, based on what you can afford, and it is shared out between them.

A DMP provider works out the payment, contacts your creditors, and handles the money. Providers must be authorised by the Financial Conduct Authority.

A DMP is not a formal insolvency procedure. Nothing is written off, and it is not legally binding on anyone, which is both its strength and its weakness.

• 1 monthly payment for all included debts
• Yes council tax arrears can be included, with our plans
• No debt written off
• Informal not legally binding

Council tax and debt management plans

If you are behind on council tax, this is the part that matters most.

Council tax is a priority debt. Once your council has a liability order, it can take money from your wages or benefits or send bailiffs, so it cannot simply wait in line with your other creditors. Because of that, many DMP providers leave council tax out altogether, and tell you to deal with the council yourself.

The debt management plans we have access to can include council tax arrears. That means one payment covering your council tax arrears as well as your credit cards, loans and overdrafts, with the council paid through the plan like your other creditors.

Three things to know:

• Your council has to agree. Like any creditor, it has to accept being paid through the plan. The council may want a particular amount each month towards the arrears, because council tax is a priority debt. That is built into the plan.
• This year’s council tax stays outside the plan. Only arrears go in. The current bill is paid to the council as normal, and it is included in your budget before anything else.
• Enforcement stops only once the council agrees. Until then, keep talking to the council, and if bailiffs are involved, ask for the account to be held while the plan is set up.

1. 1

   Your budget is worked out

   Rent, energy, food and this year's council tax come first, paid in full.

2. Then
   2

   Your council agrees to be paid through the plan

   Council tax arrears go in as a priority, with any enforcement held.

3. Then
   3

   One monthly payment

   Shared between the council and your other creditors.

One payment that covers it all

Your council is paid, so enforcement stops, and your other creditors get a fair share too.

How a DMP works

1. 1

   Start

   Your budget is worked out

   Rent, this year’s council tax, any council tax arrangement and the other priority bills come first.

2. 2

   Step 2

   The provider contacts your creditors

   It offers them a share of what you can afford, and asks them to freeze interest and charges.

3. 3

   Every month

   One payment to the provider

   The provider shares it between your creditors, in proportion to what you owe each.

4. 4

   Usually once a year

   The plan is reviewed

   Payments go up or down if your income or costs change.

5. 5

   If creditors do not agree

   They can still chase you

   A DMP is not legally binding. Creditors do not have to accept it or stop interest.

6. 6

   At the end

   The debts are paid off

   Nothing is written off. The plan ends when everything included has been repaid.

The payment is worked out from your budget. Everything you need to live on, and your ongoing bills, come off first. What is left is what your creditors are offered, with priority debts such as council tax arrears dealt with first.

Which debts can go into a DMP

A DMP can include unsecured debts, for example:

• Council tax arrears, in the plans we have access to, if your council agrees
• Credit cards and store cards
• Personal loans and payday loans
• Overdrafts
• Catalogue and buy now pay later debts
• Debts that have been sold to a debt collection agency

These are usually dealt with separately:

• This year’s council tax, which you keep paying as normal
• Rent and mortgage arrears
• Gas and electricity arrears
• Court fines, and child maintenance
• Income tax and VAT owed to HMRC
• Hire purchase, and debts secured on something you own, such as a car

The good and the bad

• One affordable payment

  Based on what you can actually afford, not on what each creditor demands.

• Someone else deals with creditors

  The provider handles the letters and calls, which many people find the biggest relief.

• Flexible

  Payments can change if your circumstances do, and you can stop at any time.

• Nothing is written off

  You repay everything included, which can take many years at a low payment.

• Not legally binding

  Creditors do not have to agree, stop interest, or stop taking action, although many do.

• Your credit file is affected

  Reduced payments usually lead to defaults, which stay on your file for 6 years.

Interest and charges

Your provider will ask each creditor to freeze interest and charges. Many agree, because a DMP makes it more likely they will be paid. But they do not have to. If a creditor keeps adding interest, your payment reduces the debt more slowly, and the plan takes longer. Council tax arrears do not attract interest in any case.

Creditors can also, in principle, still take action while you are in a DMP. It is uncommon when payments are arriving, but it is one reason a DMP is not the right answer for everyone.

Fees

Some DMP providers charge fees, often taken from your monthly payment, and some do not. Before you agree to a plan, ask:

• Whether there are any fees, and how much
• How much of each payment reaches your creditors
• What happens to your first payments

Whoever runs the plan must be authorised by the Financial Conduct Authority, which you can check on the FCA register.

Your credit file

The plan itself may be noted on your credit file, and creditors often record defaults once your payments are reduced. A default stays on your file for 6 years from the date it is recorded, whether or not the debt has been paid off.

For many people, the damage has already happened through missed payments before the DMP starts. A DMP at least puts the debts on a path to being cleared.

How long a DMP lasts

Until all the included debts are repaid. With a low monthly payment and large debts, that can be many years. The plan is usually reviewed once a year, and the payment goes up if your situation improves.

If a DMP would take a very long time, compare it with the formal options:

• A Debt Relief Order can write off up to £50,000 after 12 months, if you have very little spare money and no home
• An IVA usually lasts 5 years, then writes off what is left
• Bankruptcy writes off most debts after 12 months, but has serious consequences

Who a DMP suits

A DMP tends to suit you if:

• You are behind on council tax and have other debts, such as cards or loans
• You can afford your living costs and this year’s bills
• You could repay what you owe in full, just not at the rate creditors want
• You want someone to deal with your creditors for you

It tends not to suit you if council tax is your only debt, where a special payment arrangement is simpler, or if your debts are so large they could never realistically be repaid.

In Scotland

Scotland has a formal, legally binding version called the Debt Arrangement Scheme, which stops creditors adding interest and taking action. It can include council tax.