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Home equity and a DMP

Home equity and a DMP

Homeowners will often choose a debt management plan over other debt solutions because home equity can be protected.

Included in this article:

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Can you do a DMP if you have home equity?

You don’t have to give details about the amount of home equity you have in your property if you start a debt management plan (DMP).

Your creditors do not require further details about your home. They will decide whether or not to accept your reduced payments on the basis of your income and expenses budget and the amount you will repay each month.

This means you can start a DMP even if the amount of equity in your property far exceeds the amount of debt you include in the plan. Your creditors don’t mind because you are still committing to repay everything you owe them. Just at a slower rate.

Your creditors are not agreeing to write off any of your debt in a DMP. As such they do not require you to release home equity to compensate for this.

Do you have to release any equity during the plan?

If you start a debt management plan you do not have to commit to release any equity from your property to repay your debt.

You may have a significant amount of home equity. However generally speaking this is not taken into consideration when your reduced payments are agreed. Your creditors do not expect you to release any of it.

The fact that home equity is protected is one of the main advantages of using this type of debt solution for home owners.

That said, a DMP does not give your home any legal protection. Even after the plan is in place, any one of your creditors could still apply for a legal charge against it to secure their debt. This would in effect reduce the equity in your property.

A DMP give no legal protect to your property. Your creditors can still apply to secure their debt against it with a charge.

Is it possible to settle a DMP early with home equity?

You are not obliged to release any of your home equity during a Debt management Plan. However it may be in your interests to do so voluntarily. You can use the lump sum you release to make settlement offers to your creditors.

If these are accepted, this clearly provides a huge benefit. It allows you to both write off some of the debt you owe, and to significantly reduce the length of your plan overall.

However, releasing home equity is not easy if you are in a DMP.

If you are in a DMP, your credit rating will be poor. As a result it is unlikely that your current lender will be able to help with a remortgage. As such you will need to consider a sub prime lender or a secured loan. Both of these options will be expensive and should not be done without careful consideration.

Are you a home owner and considering a debt management plan? Give us a call (0800 044 5407) or complete the form below to get further advice.

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    2 thoughts on “Home equity and a DMP

    1. Mae says:

      Hi. If one is on DMP and sells the only residential property one lives in to pay for an end-of-term Interest Only mortgage, will it be obligatory under the law to pay back all creditors before securing a roof over one’s head? Many thanks!

      1. James Falla says:

        Hi Mae

        If you are in a debt management plan, you are not under any legal obligation to use any money from a property sale to pay off your debt. So you can use any proceeds to secure a new property or pay a deposit on a rental no problem. If you have any funds left over, you can either save them or consider using them to make settlement offers to pay your debt early.

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