How Does a Debt Management Programme Rank as a Debt Solution?
When examining the merits of Debt Management as a means to fix an individual's personal debt issues, it is worthwhile considering how creditors see it. If you mull it over, all lenders desire is that their monies be repaid fully and on time together with any interest charges that might have built up and any penalties which may have been incurred. Basically, creditors require debtors to repay their liabilities according to the terms and conditions of the agreements or contracts under which the funds were lent or advanced to start with. Not really a lot to ask, you would think!
But, needless to say, things occasionally don't work out. If the borrower for whatever reason is unable to make the repayments as contracted initially, the lender needs to think about what the next best result is which could be attained. May the debtor have property that may be used to repay the money owed? Can a family member, a personal friend or any third party assist the debtor to pay back the monies fully or in part? Might the payment terms and conditions be changed to enable the borrower to repay as much as possible of the debt? Could the term of the borrowings be lengthened so the debtor could repay the majority of the liabilities during the extended period of time?
Any time you encounter financial troubles and are not able to pay back your creditors, amongst the choices you might come across is to enter into a Debt Management Plan. This solution could be called one of the big three options in the UK with regards to the many debtors who avail of it. The other two important options that are utilized by individuals who realise that they are themselves personally insolvent are Individual Voluntary Arrangements and Bankruptcies. A comparatively recent although growing choice is the Debt Relief Order (DRO) that was introduced in 2009. Although no official statistics are published it is estimated that there are nearly one million individuals in the UK now in debt management plans with their lenders. This dwarfs the numbers entering an IVA or going bankrupt. In 2011, most recent 12 months in respect of which numbers are available, there were nearly 42,000 bankruptcy orders, 49,000 IVAs and around 29,000 DROs in England and Wales. The statistics for Northern Ireland are smaller in accordance with the smaller population there but proportionately the numbers and trends are like England and Wales although DROs were only launched there during 2011.
In Scotland legislation is to some degree different though there are very similar choices on offer. In place of bankruptcies you have Sequestrations of which there were 6,300 in 2011. There were, also in Scotland, over 8,500 Protected Trust Deeds the solution comparable to IVAs. The comparable DRO type remedy in Scotland is known as a LILA Sequestration, the letters LILA standing for Low Income and Low Assets and there were in excess of 4,800 of those.
It is beneficial then to consider the Debt Management Plan given its apparent extensive popularity. A Debt Management Plan may be a self managed one wherein the borrower themselves actually reaches an agreement with their creditors to pay off money owed on a pro rata basis i.e. the sum the borrower repays to any particular individual lender is in the same proportion as the money owed to that lender is to the entire money owed to all creditors. For example, if you owe 2,000 to the first of your creditors and you owe 20,000 altogether to all your creditors, then on a pro rata basis 10% of what you can afford to pay each month will go to that first lender.
Most Debt Management Plans however are not self administered but are managed by professional Debt Management companies that, on behalf of the borrower, negotiate with creditors and administer the debt management plans. The debtor forwards the funds, i.e. his or her disposable earnings, each month to the Debt Management Company. It in turn allocates it to the creditors, having retained its agreed upon fee. Such Debt Management Plan firms in the UK have hundreds and sometimes thousands of customers on their books.
Debt Management Plan firms pick up unfavorable media attention, every now and again. Certainly a primary reason is that the activity is fairly under regulated because it doesn't fall under the aegis of the Insolvency Act. For that reason, a few firms were accused of making incorrect and deceptive claims in their advertising, of giving poor advice to debtors and even of overcharging their customers with the result that the OFT has not too long ago ordered a good number of such firms to take immediate steps repair their operations and actually have stopped some organizations from participating in the debt management business entirely.
The major appeal for the public in Debt Management Plans seems to be it's an informal deal with creditors so that the names of debtors in Debt Management Plans don't show up on the Insolvency Register. In theory the credit rating of a borrower who enters a Debt Management Plan ought not to be detrimentally influenced however in reality, in all probability it was already affected prior to when the Debt Management Plan began. The real impact of Debt Management Plans is that the duration of repayments of obligations is usually considerably lengthened and although almost all creditors stop charging interest and penalties for a while at the very least, it might take a long time, ten years in some cases, until the obligations are repaid. Another significant appeal of a Debt Management Plan is that you do not need to be insolvent to enter a Debt Management Plan. To enter an Individual Voluntary Arrangement or petition for bankruptcy, you've got to be insolvent.
Lenders, mostly, like Debt Management Plans since there are concrete plans to pay back obligations in whole and consequently they do not need to make provisions on their balance sheets for 'bad debts'. Borrowers are advised to be cautious when selecting a Debt Management Plan company to work on their behalf and to select one of the numerous reputable Debt Management Plan companies in the industry, whose standards of advertising are professional, whose advice is thorough, transparent and of a superior quality and whose fees are reasonable, competitive and explained fully and fairly. Due to these reasons, the market demand for Debt Management Plans will most likely continue to be buoyant.
But, needless to say, things occasionally don't work out. If the borrower for whatever reason is unable to make the repayments as contracted initially, the lender needs to think about what the next best result is which could be attained. May the debtor have property that may be used to repay the money owed? Can a family member, a personal friend or any third party assist the debtor to pay back the monies fully or in part? Might the payment terms and conditions be changed to enable the borrower to repay as much as possible of the debt? Could the term of the borrowings be lengthened so the debtor could repay the majority of the liabilities during the extended period of time?
Any time you encounter financial troubles and are not able to pay back your creditors, amongst the choices you might come across is to enter into a Debt Management Plan. This solution could be called one of the big three options in the UK with regards to the many debtors who avail of it. The other two important options that are utilized by individuals who realise that they are themselves personally insolvent are Individual Voluntary Arrangements and Bankruptcies. A comparatively recent although growing choice is the Debt Relief Order (DRO) that was introduced in 2009. Although no official statistics are published it is estimated that there are nearly one million individuals in the UK now in debt management plans with their lenders. This dwarfs the numbers entering an IVA or going bankrupt. In 2011, most recent 12 months in respect of which numbers are available, there were nearly 42,000 bankruptcy orders, 49,000 IVAs and around 29,000 DROs in England and Wales. The statistics for Northern Ireland are smaller in accordance with the smaller population there but proportionately the numbers and trends are like England and Wales although DROs were only launched there during 2011.
In Scotland legislation is to some degree different though there are very similar choices on offer. In place of bankruptcies you have Sequestrations of which there were 6,300 in 2011. There were, also in Scotland, over 8,500 Protected Trust Deeds the solution comparable to IVAs. The comparable DRO type remedy in Scotland is known as a LILA Sequestration, the letters LILA standing for Low Income and Low Assets and there were in excess of 4,800 of those.
It is beneficial then to consider the Debt Management Plan given its apparent extensive popularity. A Debt Management Plan may be a self managed one wherein the borrower themselves actually reaches an agreement with their creditors to pay off money owed on a pro rata basis i.e. the sum the borrower repays to any particular individual lender is in the same proportion as the money owed to that lender is to the entire money owed to all creditors. For example, if you owe 2,000 to the first of your creditors and you owe 20,000 altogether to all your creditors, then on a pro rata basis 10% of what you can afford to pay each month will go to that first lender.
Most Debt Management Plans however are not self administered but are managed by professional Debt Management companies that, on behalf of the borrower, negotiate with creditors and administer the debt management plans. The debtor forwards the funds, i.e. his or her disposable earnings, each month to the Debt Management Company. It in turn allocates it to the creditors, having retained its agreed upon fee. Such Debt Management Plan firms in the UK have hundreds and sometimes thousands of customers on their books.
Debt Management Plan firms pick up unfavorable media attention, every now and again. Certainly a primary reason is that the activity is fairly under regulated because it doesn't fall under the aegis of the Insolvency Act. For that reason, a few firms were accused of making incorrect and deceptive claims in their advertising, of giving poor advice to debtors and even of overcharging their customers with the result that the OFT has not too long ago ordered a good number of such firms to take immediate steps repair their operations and actually have stopped some organizations from participating in the debt management business entirely.
The major appeal for the public in Debt Management Plans seems to be it's an informal deal with creditors so that the names of debtors in Debt Management Plans don't show up on the Insolvency Register. In theory the credit rating of a borrower who enters a Debt Management Plan ought not to be detrimentally influenced however in reality, in all probability it was already affected prior to when the Debt Management Plan began. The real impact of Debt Management Plans is that the duration of repayments of obligations is usually considerably lengthened and although almost all creditors stop charging interest and penalties for a while at the very least, it might take a long time, ten years in some cases, until the obligations are repaid. Another significant appeal of a Debt Management Plan is that you do not need to be insolvent to enter a Debt Management Plan. To enter an Individual Voluntary Arrangement or petition for bankruptcy, you've got to be insolvent.
Lenders, mostly, like Debt Management Plans since there are concrete plans to pay back obligations in whole and consequently they do not need to make provisions on their balance sheets for 'bad debts'. Borrowers are advised to be cautious when selecting a Debt Management Plan company to work on their behalf and to select one of the numerous reputable Debt Management Plan companies in the industry, whose standards of advertising are professional, whose advice is thorough, transparent and of a superior quality and whose fees are reasonable, competitive and explained fully and fairly. Due to these reasons, the market demand for Debt Management Plans will most likely continue to be buoyant.
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