Decision Criteria	Pros / Advantages	Cons / Disadvantages
Legal jurisdictions?	A Debt Management Plan (DMP) will work in England & Wales, Scotland and Northern Ireland.	In Scotland, a Debt Arrangement Scheme (DAS) may be worth considering before a DMP, as they operate on a similar basis, but one is informal (i.e. a DMP) and one is formal (i.e. DAS).
Flexibility?	A major feature of a DMP is that it can be reviewed on a regular basis, even as frequently as monthly, depending on changes in circumstances. A DMP offers an effective debt solution if your problem is short term or transitional (e.g. temporary loss of income, following a divorce or payment shock). A DMP requires very regular contact by us with both you and your creditors, reflected in monthly statements and diary notes.	As a DMP is an informal arrangement, your creditors are not obliged to freeze interest & charges or to cease legal action against you. They may only accept it as a short-term debt remedy, unless we inform them from the outset that your situation is unlikely to change. Where you have an adverse change in circumstances resulting in lower monthly payments then we will need to promptly discuss this with your creditors.
My home at risk?	Your home is generally not at risk where your creditors accept our offers of repayment. We will also look to protect Hire Purchase on vehicles that are essential to support your income.	If you are a homeowner, an unsecured creditor may seek security by applying for a charging order on one or more of your unsecured debts over £1,000.
My credit rating?	It is our experience that most clients we see have already fallen into arrears with one or more of their creditors and their credit rating is reduced and their credit file has detrimental information reported. A DMP flag on your credit file shows you have taken a responsible attitude to repaying your debts and that you do not want to attract credit marketing by other lenders whilst repaying your debts. Smaller debts clear more quickly, as we have a minimum distribution to creditors. A DMP does not show up on landlord checks or insurance quotes through credit reference agencies.	Creditors will place a default against each account and a DMP flag on your credit file for the duration of the arrangement to record the progress of your DMP. Defaulted agreements will be deleted 6 years after the default is recorded. You should not be able to obtain meaningful unsecured credit for a period of 6 years whilst on a DMP. Creditor reporting of DMPs can be very inconsistent. We offer you access to your credit file through the term of the DMP to ensure that it is being properly reported.
Creditors contact?	We undertake all correspondence and negotiation with your creditors. We have an excellent relationship with the majority of creditors for a range of debt solutions. We use industry standards statements and figures for presenting your household budget and payment offers to your creditors.	Your creditors will continue to send statements and notices to you as required by the Consumer Credit Act. These should not be confused with debt recovery communications. Legal notices should not be ignored and we do need to be notified of balance updates or statements showing interest or charges being applied to your accounts.
Effect on employment?	Generally none.
Impact of a PPI reclaim?	The compensation is yours (minus our fee if we are acting for you) and where it is cash-in-hand, you can determine how it is put to best use. Even if some of the compensation is set off against outstanding arrears the effect is to reduce your overall debt burden.	It is not uncommon for your creditors to set off some of the compensation against one or more of your outstanding debts, though accrued interest should be paid cash-in-hand.
Minimum or maximum amount of debt?	A minimum of £3,000 of unsecured debt with at least 2 creditors. There is no upper limit on the amount of debt, though the available disposable income will be a major consideration so that the DMP is both affordable and will complete within a sensible time period, generally under 10 years.	A DMP is based upon you repaying your debts back in full at a level that you can afford, this often means that the period of repayment is extended compared to the original contact terms with your lenders. Debt relief in terms of writing debts off is generally only achieved where we are able to make a full and final offer to one or more of your creditors. They will want to know the source of the funds (e.g. non-dependent gift, successful PPI reclaim).
Duration to repay?	There is no fixed time. The estimated duration of your DMP will be clearly communicated at the outset and at every review. Typically a DMP will last between 5 and 10 years depending on the amount of unsecured debt and your disposable income that can be used to repay your debts at a reduced level compared to previous contractual payments.	The length can extend if your circumstances deteriorate and we have to reduce the repayment offer to your creditors. Conversely, if your circumstances improve then we will increase the amount paid to your creditors, enabling you to become debt free faster. Your monthly payment to us is always notified in your monthly statement.

Clifford Watts uses the Standard Financial Statement (SFS), a recognised set of budgeting guidelines, to complete your financial statement, generally referred to as a statement-of-affairs. All unusual expenditure items and assets will be explained in this statement.

We need to establish that there is a budget surplus that is less than the sum of your contractual payments, if you are still making these. It is our experience that the majority of clients that we see or speak to haven’t been paying even minimum contractual payments on all of their credit agreements for some time. You may even have arrears on priority creditors like your mortgage, rent, council tax or utilities. These will need to be taken into consideration as part of initial review.

Clifford Watts will take reasonable steps to ensure that you include information about all of your debts (both secured and unsecured) and assets when we assess your income and expenditure. Your credit report greatly assists this process and also accurately establishes the relationship with each creditor prior to entering a DMP.

The budgeting process will also generally identify your entitlement to any means tested and non-means tested benefits. Some benefits like Disability Living Allowance (DLA) and Attendance Allowance (AA) form part of our vulnerable client policy. Some income can only be used after careful consideration as to whether it is in your best interests to do so. You can check to see whether you are eligible for any additional benefits by clicking here (we’ll insert a link out to the benefits checker that will be supplied by InBest).

The basis of a Debt Management Plan (DMP) is that you will repay the total outstanding balance of your unsecured debts over the lifetime of the DMP, which will be estimated at the outset by Clifford Watts and will form part of your statement-of-affairs. We will calculate what we believe that you can reasonably afford to repay your creditors every month using an industry recognised budgeting process. When we make the calculation we will make the assumption that creditors will freeze interest & charges on your accounts, which is not guaranteed.

The duration of your DMP is an estimate and based upon your circumstances when the initial debt advice is provided. This will be regularly reviewed by your debt management provider based upon changes in circumstances, creditor requests for a review and your annual review. You will receive an updated statement-of-affairs every time you have a review and it is important that you review and sign the final statement as being a true reflection of your financial position at that point in time. The strengths of a DMP are its flexibility and informality, such that it can act as a short and long-term debt solution.

Illustration

A client comes to us with £12,000 of unsecured debt with 5 credit agreements representing 4 creditors (2 credit agreements are with one creditor group, a credit card provider). We have calculated their disposable income to be £150. We have recommended a Debt Management Plan as your preferred debt solution.

All of your disposable income will be allocated to your debts and distributed by PayPlan. The estimated duration of the plan would be 80 months.

As a Debt Management Company we have duty to ensure that you are aware of the probable impact of entering a Debt Management Plan (DMP) on your credit worthiness, often referred to as your credit rating or credit score. The leading credit reference agencies (i.e. Callcredit, Equifax and Experian) all offer their own credit score through their services to you as an individual. Credit granters generally develop their own risk assessment systems and rating systems based upon their own knowledge of you as a client, your application data and the information available from one or more of the credit reference agencies. This is generally an automated process, though some information on your credit file can force a manual underwriting decision.

We are required to advise you that re-scheduling debt repayments may lead to:

1. an increase in the total sum to be repaid
2. an extended repayment period
3. impairment of your credit rating
4. restricted access to banking facilities and other financial services

It is our experience that where a client has a considerable amount of revolving credit debt, for example credit cards, that the repayment period under a DMP with no interest and charges being applied will be considerably less than repaying the debt at minimum contractual payment levels with annual interest of in excess of 18.8% (UK average) being applied. The level of credit rating impairment needs to be assessed against the option of ‘do nothing’ or an alternate debt solution, including self-management (often referred to as ‘self cure’). If you are unable to meet minimum contractual payments for any period of time then any informal arrangement with your creditors is likely to have an adverse impact on your credit rating and credit file.

A DMP being flagged on your credit file at a credit agreement level is likely to have an adverse impact on your credit score or rating, as it is essentially stating to the credit granting community that you have entered a recognised form of debt relief that is a non-borrowing debt solution and that you are taking a responsible attitude to repaying your debts. Lenders are meant to take a responsible attitude to advancing credit and the flag is designed to stop further credit marketing. Care will need to be taken when seeking secured credit, like a re-mortgage, or re-financing of an HP agreement. These will probably need to go through a manual underwriting process and being aware of the information on your credit file is very important in this respect and forms part of the core service that we provide to our clients.

Clifford Watts is licenced to provide credit information services and our aim is to ensure that your DMP is properly reflected on your credit file at all times. Data retention rules mean that the unsecured credit agreements that we act upon will be deleted from your file in the normal course of the majority of most DMPs, as they will last longer than the 6 years that any adverse history will remain on file after your account is marked as in ‘default’ in accordance with the data sharing schemes operated by the credit reference agencies. This does not mean that you no longer owe the money to your creditors!

In a Debt Management Plan (DMP) there is no guarantee that any current (or future) legal action or proceedings against you will stopped, suspended or withdrawn. This needs to be taken into context, as the cost of enforcing legal action in any of the legal jurisdictions that a DMP may operate can be expensive and many creditors only pursue this path as a last resort, especially if a client has informed them that they are in financial difficulty and have approached a company like Clifford Watts to assist them with their debt problems.

The majority of credit granters have signed up to codes of practice and follow rules by set by the regulators (e.g. the Financial Conduct Authority Consumer Credit Sourcebook) that includes provision for 30 days ‘breathing space’ when you appoint a debt manager. This allows time for the DMP to be set-up and often suspends any pending legal action. This is likely to be extended once the DMP is operation and the debt management provider is distributing payments to your creditors.

The most common form of legal action in England & Wales is through a county court judgment (CCJ). Claimants who issue a large number of claims each year, such as banks, credit card and store card issuers, utility companies and debt recovery companies, can file them to the Claim Production Centre (CPC). This is a centralised claim processing service that is intended to facilitate the removal of repetitive staff-intensive work from local courts to a single, more streamlined service. After processing the claims, the relevant information is sent electronically to the court(s) selected by the claimant. Registry Trust Limited is the clearing house for all CCJs in England & Wales.

Enforcement

There are various methods of enforcing a judgment through the county courts. The most common method of enforcing a monetary judgment is the warrant of execution against a debtor’s goods. This is where, unless the amount owed is paid, items owned by the debtor can be recovered by a bailiff acting on behalf of the court and sold. Where you are subject to such a warrant then you need to take prompt action and we will prioritise any debts that may be subject to enforcement action, which may take place at the same time as the judgment (CCJ) is being obtained.

To enforce non-monetary decisions made by the county courts, various types of warrants can be issued:

• warrants of possession are issued to repossess property;
• warrants of delivery are issued to obtain the return of particular goods or items; or,
• warrants of committal enforce an order for which the penalty for failure to comply is imprisonment by authorising the bailiff to arrest and deliver the person to prison or the court.

Alternatively, various types of court orders can be obtained. Attachment of earnings orders enable payment through the debtor’s employer. Fourth party debt orders enable payment by freezing and then seizing money owed by a fourth party to the debtor. Charging orders obtain security for the payment against the debtor’s assets. This may be followed by an order for sale which forces the sale of these assets, this is most commonly used as an enforcement strategy against home owners.

The law on Charging Orders changed in April 2013. The Charging Orders (Orders for Sale: Financial Thresholds) Regulations 2012 (attached) now imposes a minimum limit of £1,000 to which creditors can apply for an Order for Sale.

A charging order is a court order that places a 'charge' on a debtor's property, turning unpaid, unsecured judgment debts into secured debts. This means that once any prior ranking charges on the property have been settled, the debt must be paid back out of the available proceeds of sale when the debtor sells the property. As stated above, a bank or other creditor which has obtained a charging order can also apply to the court for an order requiring the property to be sold, but this happens only in a minority of cases.

Expert Guidance on Bailiffs