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New "twists" on the traditional DMP

By Edited Nov 13, 2013 0 0

Up until recently a DMP worked in a standard way; a debtor makes scheduled payments into the plan (monthly or weekly), this money, minus the provider fee if one exists, is then distributed by the DMP practitioner to each of the creditors. Debt management plan providers are required by the Office of Fair Trading (OFT) to pay creditors this money within five days of receiving it.

New "twists" on this conventional, established model have been growing in popularity lately.

The first example of these "twists" involves making use of consumer credit legislation to hopefully "eliminate" some of what is owed; then a DMP is used to pay back what is left. Having to repay a lesser portion means that the length of the DMP could be shortened.

Such elimination measures are generally not guaranteed, do not work very often, and usually encourage large upfront payments that are non-refundable if they don't work. This means that some money that could have cleared debts has actually gone to the provider of the "debt elimination" service regardless of the outcome they achieve.

Another similar method relies on a smaller proportion of the monthly debt management plan payment being distributed to creditors. The balance of the money is "saved" for the prospect of the creditors agreeing to reduced settlements at a later date. They could choose to offer reduced payments in the future; however, they may also become impatient with the debtors' failure to repay all they can afford in the interim. This could encourage legal debt recovery procedures to be implemented that may have been avoided with a more commonplace DMP.

"Saving" a proportion of the repayment using this method could possibly have a negative effect on the interests of the client. Providers using this method may not secure the "saved" funds meaning that if the provider were to go under the debtor's money could be in jeopardy. Questions have been raised recently as to whether or not these operators are really putting aside these funds safely at all. Trustworthy reports support the fact that some companies might not be securing all client funds.

Anyone offered a "DMP" which incorporates either of these methods (or both of them) will likely have been told some very attractive promises that this represents the quickest way to repay what they owe.

It is suggested that any person thinking about a DMP takes into account all the legal and financial repercussions, especially if you're offered any of these recent "twists" on the conventional method. If something looks like it could be too good to be true use good judgement and analyse your options as this should help you make a decision.


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