No account is taken of your property if you use a Debt Management Plan (DMP). As such your home equity is normally safe.

Included in this article:

• Will I have to sell my home?
• Is my equity safe from creditors
• Using home equity in a DMP
• Release equity or do a long DMP?

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Will I have to sell my home if I use a Debt Management Plan?

Some debt solutions involve you releasing home equity to settle your debts. Formal debt solutions are more inflexible on this point – you will have to give up some or all of your equity. Informal solutions such as a DMP (Debt Management Plan) are more flexible, but there are things to watch out for.

A DMP is an informal, non legally binding agreement with your creditors which allows you to reduce your monthly debt repayments to an affordable amount. Because of its informal nature you will not be forced to release any equity from your home to help repay your debt.

If you want to protect your property and belongings, rather than having to release equity to pay unsecured debt you may therefore be thinking about using this solution.

People often do not want to release home equity if at all possible. However, using home equity to settle debts is actually a very common and often very efficient way of settling debt.

Is my equity safe from creditors

A DMP is an informal agreement. It is not legally binding and does not provide the same protection at and IVA or Bankruptcy. Usually however, provided you keep up the agreed payments creditors probably will not take further action. After all the agreement ensures that you will over time pay the full debt back.

However they can take action if they want to. Perhaps there is a poor payment history between you. Maybe they are aware of the home equity you have. Perhaps they feel your DMP will take too long and they want their debt back sooner.

There is a way for the creditors to secure their debt against your property. It is a bit complicated as they have to issue a CCJ (County Court Judgement ) first and then apply to the court for a charging order on your property. Again, this does not mean you would have to release the equity as such. It just means that, like you mortgage, their debt is secured against your property.

As a general rule, if you in a DMP and receive a CCJ notice you should get advice ASAP. If debts are secured on your home, you may have less options in terms of debt solutions. Ask us to help explain this for you.

Using home equity in a DMP

If you do start to consider using equity from your property to pay your debt you need to go about this in the right way.

You should not have to release the same amount of equity as your outstanding debt. This is because once you have been in a DMP for a while most of your creditors will be prepared to let you settle your debt for less than the amount outstanding if you are able to make a lump sum payment.

The amount of lump sum you have to make available will vary depending on your personal circumstances. However, it is possible that a lump sum offer of as little as 50% of your outstanding debt could be enough to settle in full.

Be cautious about remortgaging to release your equity. Your credit rating may mean you can only get a higher interest rate. It might be better to consider a secured loan – we can advise you on this.

Release equity or do a long DMP

It is advantageous that a DMP does not force you to release your home equity. However, you must make sure you weigh this up against the significant disadvantages.

These are that you still have to pay 100% of your debt back. The people you owe money to will not automatically agree to write off any of your outstanding balances for you. It is likely that you will be repaying your debt for a very long time.

After being in your Plan for a year or two you might find that this process is going to take longer than you first thought. You may therefore want to consider equity release to help pay off lump sums so that you become debt free more quickly.

If you are prepared to release your equity you can also do a lump sum IVA. This means all your creditors would have to write off the same proportion of the debts. Its a one off payment and can be completed in under 2 months.