Debt Management Plans and Debt Relief Orders are both products utilised to help individuals in debt escape the red and move into the black. However, the processes and methods of the two products differ significantly, benefitting debtors in different circumstances.
Introductions to Debt Management Plans and Debt Relief Orders.
A Debt Management Plan is a method to consolidate numerous debts into one central, more affordable payment for the debtor to repay at a mutually agreed rate. An account manager will examine the debts, household income and expenditure of the debtor and agree a better suited repayment scheme with the creditors at an affordable rate.
A Debt Relief Order is an alternative to bankruptcy that was introduced to the United Kingdom in the Tribunals, Courts and Enforcement Act 2007. A debtor with total gross assets of less than £1000 and unsecured liabilities of up to £30,000 can apply for a DRO, writing off their debts.
Benefits
The Debt Management Plan consolidates the debts into a repayment scheme that is affordable for the debtor to repay. Each plan is tailored specifically to the needs of the debtor, ensuring that it is beneficial to them. Additionally, the debt advisors at InControl will revisit the plan every 6 months to ensure that it is still benefitting all parties involved. The debt can be paid off over a period and added interest may be frozen if the creditors agree to the condition.
The Debt Relief Order can immediately wipe out all of the debts owed by the debtor. The debtor will be protected from approaches by the creditors throughout the process of the application and will be free of debt at the end of the process (most commonly 12 months).
Disadvantages
Unlike the Debt Relief Order, the Debt Management Plan does not wipe out the debt, just realigns it. Furthermore, the lower rate of repayment will mean that it will take longer for you to be debt free. Your credit rating will be negatively affected by taking out a Debt Management Plan.
The Debt Relief Order brings with it many of the same disadvantages of applying for bankruptcy and can severely impact upon on the debtor’s credit rating. The Debt Relief Order will remain on your credit rating file for six years.
Who is Eligible?
To be eligible for a Debt Management Plan, you must have:
– £1,000+ of unsecured debts
– Minimum monthly disposable income of £80
– 2 or more creditors
– Proof of income/benefits
To be eligible for the Debt Relief Order, you must:
– Be unable to pay off current debts
– Have unsecured liabilities not exceeding £30,000
– Have gross assets under £2000
– Have monthly disposable income less than £75
– Be domiciled in England or Wales
If you require any additional information, simply contact one of our dedicated customer services team on 0800 072 6623 or by email.