What can I do if my debt management company goes bust?
24 March 2011
James Falla (about the author)
There have been reports recently of debt management companies going bust or being forced to close. We investigate your options if the debt management company you are using goes out of business.
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.
In addition, it has 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 DMP (Debt Management Plan) and find yourself in a situation where the debt management company you are using goes out of business, it is important to understand what you can do.
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What happens to money already paid into the DMP?
Money that you pay into your debt management plan should always be paid into the debt 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 with your company.
The OFT guidance for debt management companies states that all money paid into a client account for distribution to creditors should be paid out to them within five working days.
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.
However, 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.
You are 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 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 debt management 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.
Using a new DMP company
The alternative to managing your DMP yourself is to ask another company for help.
You may be given the details of an alternative debt management company 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 debt management 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.
Alternative debt solutions
Before rushing to set up a new debt management plan, it is always worth taking the time to review all of your options.
A popular alternative debt management solution is an IVA (Individual Voluntary Arrangement). 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.
When you first started your debt management plan, 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 in an IVA. This means that you may now be eligible for an IVA based on the lower payments you have been used to paying into your DMP.
Do not panic
If like hundreds of thousands of other people in the UK, you are currently in a debt management plan, 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.
You now have the opportunity to find an alternative debt management plan provider or consider a different solution such as an IVA which could be a more suitable way of dealing with your debt problem.
Arrange a call with a Debt Management Expert