More than a quarter (26 per cent) of Debt Management Plans (DMPs) will last ten years or more, even though a DMP is meant to be a short-term repayment plan between an individual and their unsecured creditors, according to figures released by insolvency trade body, R3.
R3 is the trade body for Insolvency Professionals, and is made up of 97 per cent of the UK's Insolvency Practitioners (IPs) from all over the UK.
R3 says that DMPs can play an important role in offering a manageable solution to individuals who are able to pay back their debts.
However, the sheer length of some plans indicates that the amount of debt these individuals have is too large for a DMP.
By entering into these inappropriately lengthy plans people become “slaves to their debts", says R3.
"Moreover, our figures show that a third (30 per cent) of individuals who are currently bankrupt or in an Individual Voluntary Agreement (IVA) used to be in a DMP,” said R3 President, Peter Sargent.
“The volume of those who go from DMPs into a formal insolvency procedure suggests that, in some cases, DMPs prolong distress when another procedure would have been more appropriate to start with."
R3's survey also reveals that twenty-two per cent of individuals in a DMP say they were not asked for proof of their income or expenditure before their plan began.
"It is incredible that organisations set up DMPs without these vital details," added Peter Sargent. "If this information is not verified at the start the monthly payments may be set too high - dooming the plan from the outset."
R3's research also finds:
- 46 per cent of IPs have seen DMPs fail because the monthly repayments were too high.
- 52 per cent of IPs have seen individuals being ‘pushed' into DMPs by creditors.
- And 35 percent of individuals in a DMP say that other options for dealing with their debts, such as an IVA or bankruptcy were not discussed before starting a DMP.
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