What can I do if my debt management company goes bust?
Over the past month DCM Money Solutions, a Nottingham based debt management company has stopped trading and gone into administration. This is presumably because the company itself cannot pay its own debts.
It has also been reported that a number of other debt management companies are at risk of losing their Consumer Credit License and will therefore be closed by the OFT (Office of Fair Trading).
It is true to say that these cases are unusual. However, if you are currently in a Debt Management Plan (DMP) and find yourself in a situation where the company you are using goes out of business it is important to understand what you can do. We explain your options.
What happens to money already paid into your DMP?
Money that you pay into your DMP should always be paid into the management company’s client account. This means that it is ring fenced and not mixed with the company’s own finances. If you are not aware that this is happening you should check.
The OFT guidance states that all money paid into a client account for distribution to creditors should be paid out to them within five working days. As such any money you have paid to your debt management company so far should therefore have been passed on to your creditors and so you should not suffer any loss in that respect.
BMD Tip: As soon as you learn that your debt management company has stopped trading you should stop making any further payments to them by cancelling your standing order.
Are you still liable to pay your debt?
Even though your debt management company has stopped trading you still remain responsible to pay all of your outstanding debt. In the short term it is therefore a good idea to continue making the agreed monthly payments to your creditors yourself.
You should write to your creditors explain the situation and confirm that that you will be making the payments directly to them for the time being.
If you wish, there is nothing to stop you continuing to manage your Plan yourself. The advantage of this is that you no longer have to pay a monthly management charge and so all of the money you pay goes to paying off your debt.
However you will have to manage all of the small monthly payments which is often time consuming and deal with any ongoing negotiations with your creditors.
Do you want help to start a DMP? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts
Can you start using a new Debt Management Company?
The alternative to managing your DMP yourself is to ask another company for help. You may be given the details of an alternative organisation to speak to. However, you are not under any obligation to do this. You can speak to any company that you wish to in order to get further advice.
If you are looking for a new company to take on your case, it is advisable to speak to two or three different ones and chose to work with the one you feel most comfortable with.
One thing to look out for is whether the new company will charge you a fee to take on your case. Make sure you choose a new company who will not do this.
Alternatively you could consider working with a charitable organisation such as the CCCS. The CCCS do not charge to take on or manage your DMP. However it may take a long while to get an appointment.
Should you use an alternative debt solution?
Before rushing to set up a new DMP it is always worth taking the time to review all of your options.
In England an Wales an Individual Voluntary Arrangement (IVA) is a sensible alternative solution to a DMP. Very often this can be a better solution as once in place further interest and charges are stopped by law and part of your debt can be written off allowing you to become debt free sooner.
BMD Tip: When you were first deciding which debt management solution to use you may have been told that you were not eligible for an IVA because you could not afford the required monthly payment. However over the recent past many creditors have reduced the amounts that they are prepared to accept and so you may now be eligible for this option.
Do not panic if you are in a Debt Management Plan
If like hundreds of thousands of other people in the UK, you are currently in a DMP there is certainly no need to be alarmed. There are many extremely reputable debt management companies and it is unlikely that the one you are using will suffer any problems.
Nevertheless, if you do find that you are having problems with your current company, or worse still you believe that it has been forced to close, you should not panic.
Remember, you are still liable for your debts. However, the money you have already paid into your plan is almost certain to have already been paid to your creditors so you should not have lost anything and you now have the opportunity to review your situation and chose the best way to deal with your debt moving forward.
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