Can creditors refuse a Debt Management Plan?

You may be in debt and have found that a Debt Management Plan (DMP) is a suitable way of repaying the money you owe to creditors in smaller installments. However, can creditors turn you away if you’re looking to apply for this type of debt solution?

What is a Debt Management Plan?

A Debt Management Plan is an informal debt solution whereby you agree to pay your creditors back at a reduced amount each month.

To arrange a DMP, you will work with a debt management company (like PayPlan) to review your finances and work out an affordable amount you can pay back to your creditors each month. Your debt management company will propose this to your creditors.

A DMP can last for years and the length of such a plan is dependent on each individual and their financial situation. Because it is an informal arrangement (unlike an IVA, which is legally binding), creditors are within their rights to not agree with your offer of repayment and demand their money back sooner.

Can creditors refuse your DMP?

Yes. Creditors are not obliged to accept a debt solution but they could accept a Debt Management Plan if they feel this is the best way for them to recover the money owed to them.

You will have to put forward a firm and fair offer of payment to your creditors and outline how much you can afford to pay back each month. An Income & Expenditure form will help you realise what your budget is.

Your creditors may stop adding interest and charges to your debts and offer you some breathing space so you have time to get your finances in order. However, this is not guaranteed.

Why would they refuse your DMP?

A creditor may reject your offer of repayment if they feel they aren’t getting enough money paid back to them. If this happens, your debt management company will keep you informed and offer advice as to the best way forward.

You may find that some creditors threaten legal action and even force you into bankruptcy, as this could be seen as a faster way for them to get their money back. If this is the case, a debt management company can offer expert advice on what the best solution is for you.

What further steps can I take?

To keep your creditors onside, you should be making regular token payments to them to show willingness to pay back your debts. Even if this is a small amount, it will help your case. Creditors cannot refuse reduced payments from you, so you may be able to buy some time before reaching a debt arrangement.

If a DMP doesn’t seem to be a suitable option for you, you may wish to seek an alternative debt solution, such as an IVA or Bankruptcy. Please seek professional advice before entering into any debt solution. You should ensure you have arrangements in place to repay any priority arrears first (mortgage and utility bills) as these affect your immediate day-to-day life.

Get debt advice today

Our advisers are happy to help you find the best debt solution for you and if you’re ready to talk, then so are we. Call us today on 0800 316 1833 or get free online debt help.