Inheritance you receive during a debt management plan is yours to keep. You decide what to do with the money. It can be saved, spent or used to reduce your debt.
Included in this article:
- What happens to if you get inheritance during a debt management plan?
- Are you allowed to pay off your debt?
- What if you don’t have enough money to pay everyone?
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What happens to if you get inheritance during a debt management plan?
You are allowed to keep any inheritance you get if you are in a debt management plan (DMP). You decide what to do with the money.
The Plan is not legally binding. This means there is no contract which says windfalls (like inheritance) received during the agreement have to be paid into it.
As a result, the money is yours to do with as you wish. It can be saved or spend on what ever you want. You don’t even have to tell your debt management company about it.
Maybe you have taken on more debt since starting your DMP. Perhaps another credit card or you have built up a balance with PayPal. Alternatively you might have fallen behind with your council tax or utilities. You can use your inheritance to pay off any of these types of debts if you like.
A debt management plan is informal and flexible. There is no obligation to pay any of the inheritance you have received into your Plan if you don’t want to.
Are you allowed to use your inheritance to pay off your debt?
When you receive an inheritance payment, you can certainly use some or all of the money to pay off debt in your debt management plan if you want.
Depending on the amount you have available, you might decide to repay all of your debt in full. Alternatively you could pay just one of your creditors. You can do this at any time during your DMP. All you need to do is call up each creditor and arrange to pay the funds to them.
If you do pay off any of your debts, remember to let your debt management company know. They can then stop further payments to that creditor and increase the payments to the rest.
Rather than paying off debt in full, you could use your inheritance to increase your monthly DMP payment. Doing this will mean that you will pay off your Plan much faster.
What if you don’t have enough money to pay everyone?
The inheritance you have received may not be sufficient to pay off all the debt in your debt management plan. Where this is the case you have two options.
First, you don’t necessarily have to pay off each debt in full. You can stretch your money further by offering each a smaller lump sum to settle the outstanding amount. If your Plan has been running for 12 months or more, you might be able to negotiate a settlement of as little as 50% of the balance owed.
Second, despite what you may have been told, you are allowed to pay of some of your debts but not others. So for example, if there are 6 debts in your Plan, you can pay or settle just 3. The other 3 stay in the Plan and simply take a greater share of the ongoing monthly payment.
If your DMP is managed by Stepchange, they may tell you that you are not allowed to pay off just some of your debts and you can only settle early if you have sufficient money to deal with them all. This is not true.
In this situation you can certainly approach individual creditors and offer settlements to them directly yourself. Alternatively, if you want help with the negotiations, you can change to a different debt management company.
Want more advice about a debt management plan? Call us (0800 077 6180) or complete the form below. Its free and confidential.
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