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What to do if your DMP firm is closing

A lot of Debt Management firms are closing. If this happens to your firm, your reaction may be alarm – for many people their Debt Management Plan (DMP) rescued them from a difficult financial situation and they are very happy with the monthly payments they are making.

This article looks briefly at why these closures are happening but concentrates on the practical implications for you – what your options are now.

Has your DMP firm closed? Man standing at crossroads - find out what your options areWhy can’t my DMP carry on?

All DMP firms had to apply to the new regulator, the Financial Conduct Authority (FCA), for “authorisation” at the start of 2015. The FCA found many problems at DMP firms, including:

  • people being given bad advice to start a DMP;
  • administration errors such as not telling clients about what is happening with their debts;
  • not handling “client money” properly; and
  • not conducting reviews during a DMP to see if it is still right for you.

From 2016, some firms were told the FCA was likely to refuse their application and many of these have been closing down.

Is your DMP firm suggesting you transfer to another firm?

Most closing firms are behaving responsibly. But if your firm suggests that you should not be getting debt advice but should sign up for some legal services, possibly with a firm of solicitors or a firm that that is charging for legal template letters, you should be very wary. Look at all your other options, see below, before agreeing to pay anyone any more money.

Don’t panic!

Your instinct may be to sign up for another DMP immediately, but it’s good to step back and look at whether you have any better alternatives. You may not have had the different options properly explained by your old DMP firm at the start, or your situation may have changed, for example your debts have hopefully gone down!

You don’t need to worry that your creditors will immediately start hassling you if they don’t get their next month’s DMP payment. They know that there will be lots of people with a similar problem and that it’s not your fault.

Looking into your options may take a few weeks or more – this is time well spent to make the right decision. If you have a think, look at your options, and tell your creditors within a month or two that will be fine.

A key factor is how long it will take to repay your debts at your old DMP payment level. If its less than 5 years, a DMP is probably your best bet. If it’s a lot longer, say 8+, you should be thinking if you have any quicker options.  From 5-8 years, it’s your decision as to what you feel will work best for you.

When you are looking at how long a DMP will take, have a think about whether you will be able to increase your payment in the next few years (could your childcare costs decrease?) or whether you may have to reduce it (will you be retiring?). This sort of thing can’t be scientific, but put some figures into here to get a feel for how that would affect the time your DMP takes:

Some common alternatives to a DMP

Start repaying your debts faster?

At the beginning of your DMP, you may have been paying all your could reasonably afford, but has your situation now improved a lot? Perhaps your family situation is different? Or your income? It may feel convenient to carry on paying a low amount to your creditors, but it’s good to clear the debts out of the way, especially if you might want to get a mortgage as being in a DMP makes it very difficult to get a mortgage even if your credit file is clean.

Are any of your debts really old?

What matters here is when you opened the account, not when you couldn’t pay it. If you have any loans, credit cards, store cards and catalogues that were opened before April 2007, then you should ask the current creditor (usually a debt collector) to produce the CCA agreement for the debt, because if they can’t, the debt is unenforceable in court and you can simply stop paying it.

There is a template letter and more details in this National Debtline factsheet. It’s also worth doing this for ones that were opened quite few years ago but aren’t so old, but it’s less likely to work for the more recent debts.

Debt Relief Order (DRO)

If you owe less than £20,000, are renting and have little spare income, a DRO could be your best option.

If your only income is benefits you will qualify. If you are paying less than about £100 a month to your DMP, have a look at a DRO  – the DRO limit is only £50 a month, but the calculations are different, so you may be able to have a DRO even if you are paying more than £50 to a DMP. See Is a DRO better than a DMP? for a comparison of the two options.

An Individual Voluntary Arrangement (IVA)

This may work for you if you have a reliable income and assets to protect such as a house with equity. Without assets, it’s better to go for a DRO or bankruptcy. The big advantage of an IVA is at the end of 5 or 6 years, your debt is written off, rather than a very prolonged DMP. But this is a long, formal contract and about a quarter of IVAs just fail. You also need to think about the secured loan clause if you have a house, as this may be worrying for you. See How to choose between an IVA and a DMP for more information.

Bankruptcy

For many people with large debts bankruptcy is the fastest, cheapest and simplest way to be able to start again.  From April 2016 this has become easier – there is no need to go to court and you can save up for the fees. Perhaps you should have gone bankrupt years ago when you started the DMP, but don’t let that stop you making the right choice now! See Long DMP vs bankruptcy? for more details.

Full & Final Settlements

If you have been in a DMP for a while and can now get a lump sum it is worth looking at Full & Final settlements. You may have been able to save up some money if your situation has improved, you may have a new partner, you could reclaim PPI or get a payday loan refund, take money out of your pension (think hard before choosing that last one!)

Setting up a new DMP

If you do feel a new DMP is your best choice, then how should you set it up?

The DIY option

Now you have experience of a DMP, you may feel that you can run your own and would like to be in control. Perhaps you don’t want to start discussing your finances again with a different firm.

CABMoney is a free online facility from Citizens Advice that will generate letters to your creditors, income & expenditure sheets, calculate what to offer etc. It’s completely private and you don’t have to go to Citizens Advice for advice before using it – though if you are wondering if a DMP is right for you, that could be a good idea!

A free DMP plan

There are three major providers of free DMPs in Britain: StepChange, Payplan and Christians Against Poverty.

If you go to one of these, your DMP will work in exactly the same way as before – the new DMP firm will deal with your creditors and you just make one payment a month to the DMP. The only difference is that all your money will be going to your creditors with no fees deducted – so your DMP will end sooner.

Another commercial DMP firm

You could also go to another commercial debt management firm –  although I can’t think of a good reason to do this! See Choosing a Debt Management company where I’ve looked at this in detail. If your current DMP firm is suggesting you change to a particular firm, remember they are probably being paid to say this…

Getting some help to decide

If you would like some help looking at whether a new DMP is your best option, check out my list of good places for debt advice to find one that will suit you best. Live in Scotland? Have business debts? Prefer face to face advice? Need help with benefits issues?  There are a wide variety of places to go to get free and independent advice on your best alternatives.


More Debt Camel articles:

PPI refunds even if you have been refused

How to get refunds for payday loans

Bankruptcy – the big questions people have

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May 18, 2016 Author: Sara Williams Tagged With: DMP, General news & policy

Comments

  1. Stephen kilbee says

    May 18, 2016 at 3:56 pm

    So if you can get the wrong or bad advice about DMP then surely you can get bad or wrong advice about an iva, so maybe the should fall into the same category as miss sold ppi. As I feel with my iva I may have been better of paying the £500 to declare myself bankrupt and my iva company wouldn’t of had almost €50,000 out of me when I only owe just over £40,000, Then maybe I would of received my ppi instead of my iva company holding onto it. Whatever happens with the court case about an iva and payment of ppi these companies should really be looked at as long have mentioned before they are supposed to bring your debts down not send them up. Maybe people who have had this problem should think about lobbying their local Mp if enough people do this then these companies might stop charging solicitors fee’s over £100 an hour in most case’s (check you sheet of payments and expenses ) most of you will be shocked at all the charges because I was when I looked closely. IVA’S can be a rip off if you don’t get the right one!!!!!!

    Reply
    • Sara (Debt Camel) says

      May 18, 2016 at 5:49 pm

      You are right that IVAs can be mis-sold just as easily as DMPs.

      But if you had gone bankrupt, then your PPI would now be going to the official receiver, not to your IVA firm.

      Reply
  2. Shan says

    November 13, 2016 at 10:57 pm

    My situation is i had few credit cards and overdrafts. i was paying the minimum payments for a long time and i lost so much money in something and i couldn’t pay from 2013, soon after i stopped the minimum payments i got in touch with Debt management company and i was making regular payments, which they charged a chunk for their fee and the rest they were contributing for my other 5 lenders. in the meantime the debt management company was changed to another company and i was still making payments. recently in feb 2016 due to government legislation my debt management company (PDHL) was closed, from that time i couldn’t go to another debt company as i lost my job and its been really stressful. now they all started to call me and asking for payments on a regular basis.
    I am not in a position to make any more payments.

    3 of the lenders have put default around mid 2016, and again one of them sold my debts to another company and they put me on default again i think. Couple of them haven’t put me on default. I want to know when is the date my defaults will come off the credit file. and i am afraid if they other 2 lenders who has not put default yet, can they put me on default again? Also at the end of the 6 yesr of the default date even if haven’t paid , will it still come out of the file, will they still require payments from me.

    I know i have asked so much question, i would really appreciate your answers , it will help me to stop worrying and prevent my sleepless nights.

    Thank you

    Reply
    • Sara (Debt Camel) says

      November 14, 2016 at 8:23 am

      You have two problems – what to do about your debts now your DMP has been stopped and what to do about your credit record. The first of these problems is much more important – even if a debt drops off your credit file, the creditor can still take you to court for a CCJ, which would then wreck your credit record for another 6 years!

      Creditors have been understanding with people’s like PDHL customers whose DMPs have been terminated, letting them have time to set up other arrangements. But you have now had well over 6 months so it’s not surprising you are now getting regular calls about your debts… I know you say you don’t have any money for repayments, but you still need to get some debt advice on what your options are as this article suggests. This time get help from someone that isn’t going to charge you anything!

      Reply
  3. Julie says

    December 30, 2016 at 10:02 pm

    Hi there,

    Back in November 2014 I received a letter from housing benefit telling me I owed them £2000.. All very out of the blue! But they then took £100 out of my benefit each month to recover it, this then had a knock on effect with my creditors so I took myself to CAB who were helpful and set me out an expenditure sheet to send to my creditors in which I did and have been paying them the amount I can pay without fail every month since. I recently have been getting letters from Barclaycard telling me that my account is closing in February and a default will be issued all very out of the blue?! Can they do this? I have kept all my letters from them and one states that a repayment plan can be made up to 5 years so why now are they just closing it?! I thought a default can only be issued if I am behind in my payments which I haven’t been! I have written them a letter of complaint and contacted the ombudsman who told me to contact them if I don’t hear anything but I am annoyed with Barclaycard and stressing about a default too. Would appreciate any help

    Reply
    • Sara (Debt Camel) says

      December 31, 2016 at 8:26 am

      What were your normal minimum Barclaycard payments and how much have you been paying them monthly.

      Have you now finished repaying the Housing Benefit overpayment?

      Do you have other debts you also made an arrangement to pay with?

      Reply

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