A Debt Management Scheme is best described as an agreement between the debtor (you) and his creditors (people you owe money to) to 'informally' agree a payment schedule. This enables the debtor to repay his debts without entering formal insolvency procedures or taking out any new loans.
1. Simple alternative, sometimes creditors agree to amounts being paid free of interest. (However, they are not obliged to do so).
2. Can normally achieve good returns to creditors.
3. If debt repayment ratio between 15% and 20% of net household income, the repayment plan is likely to be successful.
4. Your home should not be affected, as long as mortgage and other payments continue.
5. No up front fees required.
6. No obligation to bankrupt debtor if the repayment plan fails (as there usually is in an IVA).
7. None of the disadvantages of bankruptcy and individual voluntary arrangement apply.
1. Creditors are not legally bound to accept the repayment plan. Dissenting creditors can be an issue.
2. Creditors are not obliged to stop charging interest on amounts due.
3. There is risk that the agreement is not binding as in an individual voluntary arrangement. However, if the payment terms are complied with this is rarely an issue.
4. Your normal responsibilities still continue. For example, mortgage payments, rents and ongoing utility bills must continue to be paid. In addition, you must still (if necessary) respond to creditors' letters.
5. Your credit status is likely to be affected in the short to mid term.
