8th March 2010
A quarter of borrowers in Debt Management Plans will be
"enslaved" by their plan for over ten years, despite DMPs being
intended as short-term solutions, according to insolvency trade
body R3.
R3 President, Peter Sargent said: "DMPs can play an important
role in offering a manageable solution to individuals who are able
to pay back their debts. However, the sheer length of some plans
indicates that the amount of debt these individuals have is too
large for a DMP. By entering into these inappropriately lengthy
plans people become slaves to their debts."
"Moreover, our figures show that a third of individuals who are
currently bankrupt or in an Individual Voluntary Agreement (IVA)
used to be in a DMP. The volume of those who go from DMPs into a
formal insolvency procedure suggests that, in some cases, DMPs
prolong distress when another procedure would have been more
appropriate to start with."
The survey by R3 - which covers 97% of the UK's insolvency
practitioners - also revealed that 22% of individuals in a DMP say
that they were not asked for proof of their income or expenditure
before their plan began.
"It is incredible that organisations set up DMPs without these
vital details," added Peter Sargent. "If this information is not
verified at the start the monthly payments may be set too high -
dooming the plan from the outset."
R3's research also found that 46% of insolvency practitioners
have seen DMPs fail because the monthly repayments were too high
and report that 52% of individuals in a DMP have been "pushed" into
it by their creditors.
And 35% of individuals in a DMP say that other options for
dealing with their debts, such as an IVA or bankruptcy were not
discussed before starting a DMP.
Claims
Financial