Debt management is the original method to dealing with debt problems and it
remains the primary approach of the Citizens Advice Bureau and others within
the not-for-profit sector. Some commercial debt management companies also use
this approach.
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Debt management plan
How it works
Any bank, finance company or credit card lender owed arrears by a consumer has
the option to seek a judgment in the county court to reclaim their money.
However, where you are not trying to avoid payment but are in genuine financial
difficulty, the court is likely to order repayments based on your ability to
pay.
The court accepts that you must first pay your 'priority' debts – these are
debts where non payment would lead to the loss of your home (mortgage or rent
payments); loss of an essential utility (gas, electricity, telephone, or water
payments); loss of an essential item (cars or other hire purchase items); or
could theoretically lead to imprisonment (magistrate court fines or council tax
payments).
The court further accepts that you need to make other payments to maintain you
and your family - so reasonable amounts for housekeeping, travel, clothing, and
other similar items are taken into account.
What remains after this exercise is a guide to the amount of money left to repay
your bank, credit card and other 'non priority' credit debts. The court will
make a repayment order based on the figure but also take account of monies owed
on other credit agreements. In addition, the court will freeze the interest
charges so that the debt no longer increases.
The negotiation of reduced debt payments simulates the approach taken by the
court. It involves producing a detailed income/expenditure schedule, showing
how much 'spare' money is available after priority payments have been made and
proposing a fair distribution of this money. At the same time, a request is
also made for further interest charges to be frozen.
Arranging a debt management plan is something that you can do reasonably easily
yourself, particularly if you use the self-help booklets available from
National Debtline or your local Citizens Advice Bureau. However, it is also
(unfortunately) true that the banks and card companies will sometimes respond
more positively if a debt advice agency writes on your behalf.
