Controversy About Debt Management Plans

15th April 2014

Debt settlement arrangements are “formal” debt deals. This means that they’re set up using personal insolvency law. A key part of the legislation is that your creditors choose whether or not they will accept the proposals that your PIP (personal insolvency practitioner) has put forward for you. An acceptance threshold must be met or your DSA will fail.

There is an alternative to formal personal insolvency debt deals. “Informal” debt solutions can also be initiated, most commonly in the form of a debt management plan. Just like a DSA you’d be expected to repay what you could afford towards your debts on a monthly basis.

Debt management plans don’t come with the same certainty or benefits as an accepted and approved debt settlement arrangement. Creditors aren’t bound by the arrangement, interest will not necessarily stop and creditors might change their position in the future. Debts will not typically be written off as they would under a DSA.

However a DMP does also benefit from being “informal”. It gives you flexibility as well as your creditors. You’ll eventually repay your debts in full if everything works out. It should be remembered also that some people work in employment types where personal insolvency could jeopardise their career. There is no doubt that there are circumstances where debt management makes sense.

So if your debt settlement arrangement is rejected by your creditors can your PIP set-up a debt management plan for you instead? Surprisingly, the answer to this question will often be “no”.

Personal insolvency practitioners are overseen by the Insolvency Service of Ireland. Debt management firms are authorised by the Central Bank. These are separate and distinct types of regulation. Most PIPs aren’t authorised to do informal debt deals like debt management plans. Most debt managers aren’t authorised to work setting up a debt settlement arrangement or personal insolvency arrangement.

Does this make sense? To an average member of the public the distinction may not be logical at all. Both provide debt advice. Both can set up debt solutions. Both can liaise with your creditors on your behalf. So if your debt settlement arrangement isn’t successful you might expect that your personal insolvency practitioner, with whom you’ve built up a relationship of trust, could put an alternative measure in place for you.

It just doesn’t work that way as things stand. 

It seems logical that these regulatory regimes would be brought under a single roof at some point in the future. Unless and until that happens, the potential for a vulnerable debtor to be passed between different types of debt solution firm remains. That doesn’t seem like an optimal solution to helping people address their debts.