Do debt management plans affect spouses? Neil Dingley, an Insolvency Practitioner and Partner of Moore Recovery in Stoke on Trent, explains what effect a debt management plan has on a partner.
What is a debt management plan?
A debt management plan, sometimes referred to as a ‘DMP’, is an informal agreement between an individual and their creditors to pay back debts including loans and credit cards. Creditors are asked to accept a reduced level of payment and to suspend interest and charges on the debts. A set monthly payment is usually arranged by a debt management plan provider and divided between the creditors.
Debts that cannot be included in a debt management plan are called ‘priority debts’, and include:
- mortgage or rent arrears
- gas and electricity arrears
- council tax or rates arrears
- court fines
- arrears of maintenance payable to an ex-partner or children
- income tax or VAT arrears
- TV licence fees and arrears
A debt management plan provider will deal with creditors directly, so the individual does not have to. A debt management plan is not legally binding, which means an individual is not tied to it for a period and it can be cancelled at any time.
Will a debt management plan affect a partner?
If there are joint debts with someone else, these can be included in the debt management plan. However, it should be noted that creditors can still pursue that person for the full outstanding debt if they are not subject to a debt management plan themselves. This is because joint agreements for products such as credit cards and loans are often subject to joint and several liability, which means each person is liable by themselves to pay back the entire amount in question.
What is a joint debt management plan?
If there are significant joint creditors, a joint debt management plan could be considered, in which both parties would be equally responsible for the obligations under the plan. Sole debts can be included in a joint debt management plan too.
Will a partner’s finances be considered when applying for a debt management plan?
A partner’s finances may be considered when looking at a debt management plan. Although a partner will not be expected to make contributions to the plan for solely owned debts, their finances will be considered when looking at shared living costs to calculate disposable income available for a monthly payment.
Does a debt management plan affect your home?
If an individual owns their own home, a debt management plan will have no direct effect on it. However, because a debt management plan is not a legally binding agreement, it does not prevent creditors taking legal action, for example by issuing a bankruptcy petition to obtain a bankruptcy order, which will likely have an impact on their home.