Losing your job is stressful and challenging at any time. But what can you do if you are made redundant during a DMP?
Included in this article:
- Can you reduce your DMP payments?
- Can you settle your Plan with redundancy money?
- Should you change to a different debt solution?
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Can you reduce your payments if you are made redundant during a DMP?
One of the key advantages of a Debt Management Plan (DMP) is its flexibility. The plan is not legally binding on either you or your creditors. This means you can increase or decrease the payments you make without notice.
If you experience a reduction in your income because you are made redundant during a DMP, you can reduce your payments immediately to reflect this. Remember, you always need to keep an eye on how long it will take you to pay off your debt. If you lower your monthly payments, the DMP will last longer.
Where you think it will take you some time to get another job you might be able to negotiate a payment break. This is where you stop payments into your plan until you start working again. If you offer to pay each creditor a token payment of £1 they may agree to suspend further collections action until you can restart your Plan.
Reducing your plan payments without creditor agreement may result in your them starting to chase you and charge interest again. As such you should always inform them (or your DMP company) before making any change.
Can you settle your DMP with a redundancy payment?
When you are made redundant you may be entitled to redundancy pay. The amount you get will vary depending on your contract. This amount is designed to cover your living costs whilst you are looking for a new job.
If you receive redundancy money you are not legally obliged to pay it into your Debt Management Plan. You can do what you like with it. However one option is to use some or all of it to repay the debt you owe.
Given you choose to repay some of your debt you should consider making settlement offers. You are allowed to approach each creditor and offer an amount which is less than the outstanding balance to settle it in full. As a rule of thumb most will accept 50% of the balance and agree to write the remainder off.
You may not be able to use redundancy money to pay off your debt if you need it to pay your living expenses until you find work. However it is certainly an option to consider.
Should you change to a different debt solution?
If you are made redundant during a DMP, you should always review your options. Reducing your payments is only really advisable if the situation is temporary. Remember the lower your payments become, the longer the Plan will last.
If you your income has fallen you may no longer be able to afford payments which will allow you to repay your debt in a sensible period of time. If this is the case you should get advice to see if there is a better solution available.
Where your surplus income is still £100/mth or more you might be able to start an IVA. You will then only have to pay for 5 more years. If not then Bankruptcy might be a better option. If you have no surplus income, once you are bankrupt you will not have to make further payments and your debt will be written off.
Bankruptcy could be an ideal solution if you are renting or you have no equity in your property. Give us a call (0800 077 6180) or complete the form below and we will be happy to chat through the options with you.
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