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Complete a Financial Statement and Payment Proposal

Once you have decided that a Debt Management Plan is the right debt solution for you the next step is to put together a payment proposal for your creditors. You cannot offer just any reduced amount and expect this to be accepted. Your offer must be based on a fair portion of your surplus income after your reasonable living expenses have been taken into account.

In your payment proposal you need to provide a financial statement including comprehensive information about your income and living expenses budgets. Your creditors will review this to ensure that your living expenses budget is reasonable and that you are proposing to pay as much as you can afford towards your debts.

What information is required in your Financial Statement?

The most important information to include in your Financial Statement is your income and living expenses figures. You should provide a copy of the figures you included in your Statement of Affairs.

Make sure you highlight all the different sources of income that make up your total income figure. Show any money you receive from wages, benefits and other sources. You must also make sure the expenditure figures you use are reasonable. You should use our living expenses guide to help you do this.

How much should you offer to pay each Creditor?

The amount that you can afford to pay towards the creditors you include in your Debt management Plan is known as your Disposable or Surplus income. You calculate this figure by deducting your total monthly living expenses from your total monthly income.

Each of your creditors must be offered a fair portion of your disposable income. To work out how much this is you need to divide it between them all on a pro rata basis. In other words each creditor receives a percentage of your disposable income relative to the percentage of the total of your unsecured debt that they are owed. If one creditor is owed 50% of the total debt they must be offered 50% of your disposable income figure.

DM4U Tip: You should show a list of all your unsecured creditors and what they are owed in your financial statement. Against each you should list the amount of your disposable income you are offering them. This ensures your creditors known that you have multiple debts and each is being treated in the same way as all the rest and none is being treated preferentially.

How to make a reduced payment proposal to your Creditors

Once you have completed a financial statement and calculated how much of your surplus income you will offer to each creditor you are now in a position to send your reduced payment proposal to them all. You should do this in writing.

Write a cover letter explaining that you find yourself in financial difficulty and are no longer in a position to pay the debt you owe. Highlight the amount that you can afford to pay and make reference to the fact that this is based on the figures in your financial statement which you will need to enclose with your letter.

You should also make clear when you expect to be able to make the first reduced payment. Ideally this should be as soon as possible but in reality it will probably be at a point in the next month after the majority of your monthly income has been received.

DM4U Tip: You should ask the creditor to help you repay what you owe by requesting that they freeze interest and charges from now on. Your creditors are not legally obliged to do this but many of them will if they believe you are making your best effort to repayment what you can afford.

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