Your house is not taken into account if you start a debt management plan. Any equity in the property should be safe. However your creditors can still take legal action to secure their debt against it.
Included in this article:
- Do you have to sell your house or release equity?
- Is your mortgage affected?
- Can your creditors secure their debt against your property?
- Are you allowed to sell your house?
Want to start a DMP? Speak to us. Call (0800 077 6180) or complete the form below
Do you have to sell your house or release equity in a DMP?
Your house is not involved in a debt management plan (DMP). The value of your property and the amount of equity in it, is not relevant.
You don’t have to disclose that you are a homeowner. This is because when you start a debt management plan, you are still agreeing to repay all of your debt. You will just do so based on reduced payments over a longer period of time.
The creditors you owe money to do not agree to write any debt off for you. In turn, there is no need for you to commit to release equity from your house to pay them back any faster.
As long as you keep paying the mortgage, no one can force yo to sell your house while you are in a DMP.
A debt management plan is the only debt solution where you don’t have to disclose the amount of equity in your house.
Is your mortgage affected by a debt management plan?
There is no need to worry about your mortgage if you start a debt management plan. You simply continue paying the mortgage company as normal. They will not be told about your situation.
You must include a sufficient allowance in your living expenses budget to ensure you can maintain your mortgage payments each month.
If you have mortgage arrears, you will not be able to include these in your Plan. You will need to make a separate agreement direct with your mortgage company to repay these.
Remember, after any agreement to repay mortgage arrears, you need to ensure you have sufficient money left over to fund your DMP. Generally speaking you will need to pay at least £100/mth into the plan.
If you come to the end of your mortgage deal during your DMP, your lender is unlikely to offer you a new fixed rate deal because of your poor credit rating. As such, you will have to move onto their standard variable rate (SVR).
Can your creditors secure their debt against your property?
A disadvantage of a debt management plan is it doesn’t give you any legal protection from your creditors. This means they can still take further action to enforce their debt even after the Plan is in place.
One of the options available is to apply to secure their debt against your property with a Charging Order.
Where a Charge is granted, the creditor can’t force you to sell your house to pay the debt, but they can then add interest (normally at 8% per year). This will significantly increase the debt over time so it will then be in your interest to repay it as soon as possible.
High street lenders (banks and credit card companies) will not normally take this type of action after a DMP is in place. However, some creditors are known to do so. In particular these include business loan providers and debt purchasing companies.
Your debt can be sold on to a different company while you are in a debt management plan. If this happens, the risk of them applying for a charge against you property will significantly increase.
Are you allowed to sell your house during a debt management plan?
You can sell your house while you are in a debt management plan if you want. The equity you release as a result of the sale is yours to keep. This is because the property is not part of the agreement.
However, you will find it very difficult to get a new mortgage and so moving to another property may not be possible. There may be a few sub-prime lenders who would consider you. But they will charge very high interest meaning the monthly mortgage payments will be unaffordable.
If you have to move during a DMP, you might need to consider renting until you have paid off your debts.
You can significantly reduce the time it takes to pay off your Plan if you use some of the money raised from selling your house to settle your debt. Given you can offer a cash lump sum, many (if not all) of your creditors are likely to accept as little as 50% of the outstanding balance.
Need 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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