Debt is what a person or company owes. This is usually in the form of assets, but sometimes includes moral obligations. This can be very stressful when it piles up. Most individuals do not want to file for bankruptcy. A common alternative is a debt management plan or DMP.
A debt management plan is typically used for those with out-of-control personal, unsecured debts. This plan can provide relief for individuals who are struggling to make payments on time and in full. Starting a plan usually involves a third party. There are several organizations that can assess income and budget and make efforts towards renegotiating payments and interest rates with lenders.
Third parties typically make the arrangements with creditors because they are knowledgeable about what is best for their client. The primary companies that take on this type of work: fee-charging companies and free creditor-sponsored organizations. The professionals working for these companies and organizations are equipped to negotiate plans that are realistic. A plan should be realistic and consider the necessities of the debtor, such as making payments on food, mortgage and utilities. Some creditors request annual reviews of the finances of the debtor. This is done to ensure that they are paying what they can afford.
Fee charging DMP companies typically charge an up-front fee and on-going fee. Cost will vary. Usually fees are proportionate to the number of debts being managed or the monthly contribution being made. Most staffs will advise debtors on the best solution for their circumstance. However, in places such as the UK, where these organizations go unregulated, advice may be given in favor of the organization and not the client.
Charities and government agencies run most of the non-fee and low-fee organizations. These groups work as most fee-charging companies do, but do not charge the clients directly. Funding for these organizations come from an array of sources, sometimes donations from creditors.
Unsecured debts are easiest to manage under these plans. This is because they are not collateralized by lien on assets. Credit cards, store cards, bank overdrafts and personal loans are just some examples of unsecured dues. Secured debts, such as car payments, utilities, mortgages and rent, are not available for monthly payment reductions.
In the United Kingdom, some creditors will register a default notice with credit companies for their debtors. This affects the chances of a debtor to be accepted for further credit. If there are defaults already existing for a specific borrower, entering into a debt management plan will not greatly affect their credit rating. Typically the inability to meet payments is recorded on a credit file and not the utilization of a management plan.
For more information on debt management visit Legally Confused, the specialist claims management company.
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Source: http://home-family-parenting.info/handling-debt-with-debt-management-plans/
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