A debt management plan (DMP) is an arrangement that the debtor sets up with unsecured creditors, either personally or through a debt management company, where it is agreed that the debtor may pay off the debt in monthly instalments.
All debt management companies must be authorised by the Financial Conduct Authority. They will charge a fee for setting up and administering the debt management plan. However, if the debtor meets the criteria set by the charities National Debtline or Step Change it is possible that they will administer the DMP for free. Where a debt management company is used, the debtor will make regular monthly payments to them and they will then distribute the amount in the agreed proportions to each of the creditors.
A debt management plan agreed with the creditors will only protect the debtor against further debt recovery actions by the creditors to the extent that this is set out in the agreement.
If the debtor doesn't keep up with the payments the debt management plan can be cancelled.
There are a number of advantages of a DMP, including, clarity in the debtor's monthly budget with only one payment going out for the DMP to be distributed between the creditors, and there is the possibility that the creditors will agree to freeze interest and stop further court action, chase letters and calls to the debtor regarding the debt.