The effect of a DMP on property

One of the significant advantages of a debt management plan over other personal debt solutions such as individual voluntary arrangement or bankruptcy is that home owners are not required to release equity from their property.

Creditors will not agree to write off debt if a debt management plan is proposed to them. They therefore expect to receive 100% of the money that they are owed returned to them.

For this reason they do not have the right to demand that equity is released from a property to repay the debt any faster.

Settling debts with home equity

If you have equity in a property which you can release, this could be used to pay off some of your debt.

This will reduce the overall amount you have to pay and mean that you will repay your total debt a lot faster.

Remember, you will not necessarily need to borrow enough to repay 100% of your debt. If you are able to borrow a small amount, this could be used to offer settlements to your creditors which they will often be willing to consider if you have been paying into your DMP for a few months.

You must bear in mind that releasing equity from your property will normally mean that the cost of your mortgage increases. As such your disposable income will fall and the amount you pay the remaining creditors each month will reduce.

Will I get a charging order?

Undertaking a debt management plan does not protect against the possibility of a creditor applying for a charging order.

One of the significant disadvantages of a debt management plan is that is does not give any legal protection against further creditor actions.

This means that even if creditors agree to receive the payments offered in a DMP, they are still able to take legal action against the debtor in terms of issuing a county court judgement (CCJ) and a charging order.

A charging order secures an outstanding debt against the debtor’s property.

Creditors cannot issue a charging order without following a legal process. They must first apply for a count court judgement. If a CCJ is issued but is not paid, the creditor can then apply for a charging order. For this reason, if creditors know that you are a home owner, they may still apply for a county court judgement even after agreeing a DMP.

If you receive a charging order, this does not mean that the creditor can force you to sell your house. This would require a further court order called an order of sale which is rare.

However, the creditor has the protection of knowing that they will be paid any outstanding debt when the property is sold. This is the case even if you decide to change the way you deal with your debts from a debt management plan to and IVA or even bankruptcy.