Change of Circumstances during a Debt Managment Plan
It is likely that your financial situation will change during your Debt Management Plan (DMP). This is largely because the Plan will probably last for a number of years. If your circumstances change this might be for the better or worse. As a result you might be able to afford to pay more into your Plan each month. Alternatively the change might mean that you can no longer afford your agreed payments. We consider your options if either of these situations does happen.
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If your circumstances change for the better do you have to increase your Debt Management Payments?
If your income increases or your living expenses fall this will mean that the amount you can pay into your Debt Management Plan each month will go up. As a result if you wish you can simply increase the amount you pay into your Plan. You do not need to renegotiate the new payments with your creditors. They will simply be happy to accept any increase you can offer.
Increasing your payments if your circumstances change for the better is generally a good idea. This will mean that your debt will be repaid faster and your Plan will be completed sooner. However there is no legal obligation on you to increase the payments you are making. The Plan is informal and so if you chose you can keep back any extra cash that you have to save or spend as you wish.
DM4U Tip: If you are able to save during your Plan you could put this towards a lump sum. This can then be used to settle some of your debts early. If you are able to achieve this it will generally reduce the length of your Plan by a significant amount.
If your circumstances change for the worse can you reduce your Debt Management payments?
If your income falls or your living expenses increase this will mean that the amount you can pay into your Debt Management Plan each month will go down. However this does not automatically mean the Plan is at risk of failure. Because it is an informal agreement with your creditors you can reduce the payments you are making each month if you need to.
A significant issue with reducing the amount that you pay into your Plan is that your creditors may consider this to be breaking the agreement. As a result they may then start to add interest and charges to your accounts until the new lower payments are agreed. However if you give your creditors reasonable warning of your reduced payments and a good reason for the change they should then agree to the new payments relatively swiftly.
DM4U Tip: A significant problem which will occur as a result of reducing your payments is that it will extend the time it takes to repay all of your debt and complete the Plan. However if there is no way you can avoid this at least you will be able to carry on with the solution as long as the revised amount you can pay remains reasonable.
What if you can no longer afford to pay anything into your Debt Management Plan?
If your circumstances change and as a result you can no longer make any payments into your Debt Management Plan then you will have to stop using this debt solution. There are a number of different things you might decide to do next.
If you have access to a lump sum of cash (perhaps borrowed from a family member) you could make an offer to each of your creditors to settle your debts. If you have previously paid into your Plan for 6 months or more you could well be able to settle by offering 50% or less of your outstanding debt.
If your are unable to get any money together to offer a lump sum settlement you will need to consider an alternative debt solution which does not require you to make monthly payments. Depending on the amount of debt you owe you could consider a Debt Relief Order (DRO) or Bankruptcy.
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