Possible Shortfalls

In theory a DMP should be a reasonable way in which a person can get out of debt. However, there can be problems.  Over recent years debt management companies have sprung up all over the country offering vulnerable people a so called 'solution' to their debt problems.  Whilst the majority of these companies provide a much needed service some of the more dubious have been criticised on TV, in daily newspaper columns or reported to the DTI...

......FOR NOT DOING WHAT THEY SAID THEY WOULD DO.

The main cause for complaint seems to be focused on whether interest and charges have been frozen on the debtors accounts in order to allow them a chance to repay their outstanding balances.  Initially these more dubious management companies say they will get the interest and charges stopped but it is questionable as to how hard some of them really do try, if at all.  When a debtor signs up to a DMP they could be forgiven for thinking that their debts will slowly reduce to nothing, due to the way that the DMP has been explained to them.  However, in certain cases, it is not unusual for the debtor to actually end up owing more money to their creditors than when they first started their DMP, even after a relatively short period of time.

YOU SHOULD BE AWARE OF THE FOLLOWING.....

• If a debt management company does not manage to negotiate an interest freeze it is highly likely that your debts could actually increase.
• You will almost certainly receive default notices from your creditors and  letters and phone calls from collection agencies/solicitors who are chasing you for money.
• You may end up getting County Court Judgements (ccj's) against you.

The main attraction of a DMP seems to be their informal approach, but, in actual fact it is precisely this informality that can cause problems to arise.  It could suit the more dubious management companies to tell debtors what they want them to hear rather than what they need to know.  Because of their desperation and the pressures they are experiencing, debtors are more likely to believe that this is the answer to their problems, putting their faith in advise that is sometimes 'questionable'.

The problem with dubious debt management companies is that there does not appear to be much, if any, negotiation with creditors.  Due to this lack of creditor consultation these management companies often fail to gain the support of all creditors and as such there seems to be a 'take it or leave it attitude' which can often antagonise creditors into taking legal action to recover their debt.  If this happens the more dubious debt management companies don't even try or at best find it difficult to stop court action.

Creditors are not obliged to accept a DMP and therefore they need to be confident that what is being offered is both realistic and above all acheivable. If just one creditor decides not to co-operate, preferring instead, to take legal action then it could lead to the debtor having County Court action taken against them.

You should also bear in mind that debt management is not legally binding and that creditors are not obliged to freeze interest or reduce payments.