Applying for a Debt Relief Order
All you need to know about applying for a Debt Relief Order (DRO).
All you need to know about creating a Debt Management Plan with CAP
A Debt Management Plan involves creating a bespoke, sustainable budget for you as you make manageable payments towards your debts.
When you decide to go ahead with a Debt Management Plan with CAP, we’ll create a budget for you based on your individual needs. This will include paying an amount to each creditor. All you need to do is pay the agreed amount into your CAP Plan on the agreed date each month, and we will distribute this money between your creditors as agreed.
How is a Debt Management Plan created?
1. Working out a budget
When we prepare a budget for you, we start by looking at your income and then your expenditure (this is the money you need to spend to cover your living costs). On the Debt Management Plan (DMP), your budget will include essential payments like rent or mortgage, utility bills, living expenses and leisure.
Once your living costs are covered, we’ll work out what you have spare to offer your creditors. Your Debt Management Plan will therefore also include payments towards your priority and non-priority debts. These payments will be arranged depending on what you can afford and following negotiations with your creditors. In some situations we’ll leave you to make payments to a creditor yourself but we’ll discuss this with you.
We’ll also ask your creditors to stop interest and charges, and it’s up to them whether they agree to this or not.
We’ll also give you an estimate of how long it will take to repay your debts. This is what we call your repayment term — please bear in mind this can change if your situation changes.
2. Following your CAP Plan Schedule
Your CAP Plan Schedule shows you how much you need to pay in each month, and the date that you’ve chosen to pay in. The schedule shows how we will use the money you pay into your CAP Plan: who we will process payments to and how much we’ll send to them.
We’ll go through this with you and you can ask us any questions. It’s really important you understand your CAP Plan Schedule and let us know if any changes are required.
3. Setting up a standing order
It’s important that you pay into your CAP Plan on the day that we have agreed with you. Paying in by standing order will make sure that your monthly payments reach us on time.
A standing order is different to a Direct Debit: with a standing order you are always in control of the payment that your bank sends to us. Once set up, you can change the amount or date by contacting your bank (online or via telephone). If you need to do this, please also let us know.
4. Keeping your CAP Plan working
To keep your CAP Plan working effectively, you’ll need to pay in the agreed amount every month. You’ll also need to let us know of any changes in your circumstances, and respond to any requests for information as quickly as you can.
Not paying into your CAP Plan as agreed could make your debt situation worse as we won’t be able to pay your creditors. This means they could add interest and charges onto the debt balance, even if previously this has been stopped, and they might start chasing you again.
However, if at any point you find your budget is no longer affordable please let us know. It can be changed and amended in line with your needs.
5. Reviewing your CAP Plan
Once a year, we’ll review your CAP Plan to check it’s still manageable for you. We will update it in line with any changes (for example, if your gas and electricity bills go up).
We can do this as a chat over the phone but we might need you to send us some up-to-date paperwork too. Don’t forget we provide Freepost envelopes so it won’t cost you a penny.
6. Debt free
This is what we are all aiming for through your Debt Management Plan – you becoming debt free! We’ll give you a call to confirm this and then all that’s left is to celebrate.
Answering your Debt Management Plan questions
Debt Management Plans are bespoke to each person. This means that they can last different periods of time, depending on the amount of debt you have and how much you can pay each month, after essential living costs. The flexibility of a DMP means that the term could be shorter if you have the budget to increase your monthly payments.
If you currently have a mortgage, a Debt Management Plan won’t inherently affect your home as long as you make your mortgage payments on time. But, it doesn’t mean that court action can’t be taken against you. Although this is less common when you have a DMP, it’s important to consider that this could still happen if you miss debt payments. If you’re behind on debt payments, then a creditor could go to court to secure debt on a property, known as a charge. This is rare.
If you’re looking to buy a home, it might be a harder process if you have a DMP, and your options could be restricted. You may find that you don’t get a good mortgage deal, or your application could be refused. This doesn’t mean that a mortgage is impossible; it could still be an option for you if you find that your current rent payments are higher than what your potential mortgage payments could be.
There are many factors that affect mortgage eligibility. To learn more about your specific eligibility, speak to a mortgage lender or broker.
A DMP isn’t recorded in your credit file, but if you pay less than the minimum or contractual amounts, this could be marked on your credit file as ‘bad’ or ‘default’ depending on how many payments have not been made as per the contract. These details will stay on your credit file for six years.
A Debt Management Plan can’t definitely stop bailiffs from coming to your door or creditors contacting you, as they’re not legally binding. However, a DMP could reassure creditors that you’re taking the right steps to pay back your debts, and a payment plan agreed with the creditor could prevent further enforcement action.
You may be able to pay off a Debt Management Plan earlier than initially expected as they’re flexible. Your options could include paying a lump sum of money or increasing monthly payments. You might be able to increase your monthly payments if there are changes to your income, spending habits, or savings. You can speak to your CAP Debt Coach about whether this is a suitable option for you.