ISA Info

When deciding to embark on a debt management process and drafting a debt management plan, it is very important that you know which debts will be dealt with and which not. Debt management plans are not legally binding agreements like Individual Voluntary Agreements (IVA) and therefore will deal with different kinds of creditors.

As such, you will need to remember that not all your creditors will be included in your debt management plan and that you will need extra resources to deal with the excluded creditors. The debt management plan is also only valid for as long as you keep up the regular payments.

The debt management process is far easier and simpler when you are using a debt management advisor as they are trained to help people budget and draft their proposals to their creditors.

Debts that are usually covered by a debt management plan are what are known as secondary debts. These are debts such as store card debt, credit cards, unsecured loans, bills that are in arrears etc. These are not the priority debts such as home loans that are secured. No secured debts will be covered by the debt management plan.

Priority debts usually have some security attached to the debt (e.g. the house or a life insurance policy, surety signed by someone credible etc.) and therefore the creditors have recourse should you fail to keep up the repayments. They have to option to repossess the house or cash in the policy or even have you declared bankrupt. For this reason priority creditors will not be interested in being included in the debt management plan.

Secondary debts, however, have no security attached to them and therefore the creditors have limited action that they can take to secure their repayments. In these cases they will be more inclined to look favourably on a debt management plan. It is important to remember that the creditor is under no obligation to agree to your plan. It is up to you to convince them that this is the best solution for both of you.

Should the secondary creditors agree to your debt management plan, you are under a strong obligation to keep up the payments as per the agreement. If you fail to pay, the creditor(s) can declare the agreement invalid and proceed with legal action against you. At the same time, you have to service the debt that you have with your priority creditors in order to avoid legal action from them.

All of this indicates that you need to do a serious analysis of your financial position when considering a debt management plan. You will need help in prioritising your creditors, as well as assistance with negotiating the terms of the agreement. With a debt management plan in place, your life will far easier, but very regulated until you’ve met all the payment requirements of your debt management plan.