If you are only making low payments to a Debt Management Plan, then it may take many years to clear all your debts even if interest is frozen on all of them. Unless you really expect that your finances are going to improve in the next few years, then this DMP is not a good plan to clear your debts as it is going to take far too long.
If the DMP will take too many years to finish, then you need to investigate the alternatives.
How long is too long?
Everyone has their own view of what may be a tolerable length of time for a DMP. If you are single in your twenties or thirties, you may feel comfortable with 8 or even 10 years as an option. That is your choice.
But this wouldn’t make sense if you want to be able to save up for a house deposit and get a mortgage that will be repaid before you retire. Or if you are older and will be retired before the DMP finishes! Or if you have a young family – you would be spending most of their childhood in debt, with constant scrimping and no holidays.
Speed up your DMP
The first thing to do is look at whether your finances can be improved so you can pay more each month to clear your debts, see all the ideas here.
If you have any assets that could be sold, then you are likely to lose them if you go bankrupt anyway, so if selling them now would reduce your DMP length to a more manageable 4 or 5 years, then go for it!
Any chance of making affordability complaints? If they could make a big difference, go for them straight away!
If you already have a DMP set up with a commercial company that charges you fees consider changing to StepChange where all your money goes to your creditors. That could take a year or more off the time to complete your DMP.
See my list here of ways to speed up a DMP.
Insolvency is something you should be realistic about. There are three types of insolvency in England, Wales and Northern Ireland:
- If you meet the criteria for a DRO (debts total less than £30,000, renting, little spare income are the main ones) then there isn’t much to think about – it’s the best choice for you.
- An IVA is unlikely as with this sort of long DMP you aren’t usually paying back enough each month for an IVA to work. And IVAs can go wrong – about a third of them are failing, leaving people back with their debts.
- Have a read through Debt Camel’s Guide to Bankruptcy – that tries to use as little jargon as possible to answer your questions.
If you don’t want to go bankrupt because of concerns about your job, then you need to weigh these against the problems of your current situation. If you earn a lot as a solicitor or an accountant it makes sense to want to keep that job – but in that case why can’t you afford to pay your debts off faster? If you are a bank clerk who doesn’t earn a fortune in the City, then perhaps you should explore if there are other jobs which you could do that pay similar amounts where bankruptcy wouldn’t be a problem.
Can’t go bankrupt because of your house?
If you have little or no equity in your house, then don’t rule out bankruptcy – it may be possible to keep your house.
If you have too much equity in your house to go bankrupt, then your best alternative to an overly long DMP is probably selling your house. You may really not want to do this, but you have to be realistic. A very long DMP if you have a house with equity can go badly wrong if your creditors get fed up with the DMP and start adding interest again, or go for a CCJ and then a charge over your house.