Debt freeze plan for borrowers.

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Debt freeze plan for borrowers:


http://www.thisismoney.co.uk/credit-and-loans/dealing-with-debt/article.html?in_article_id=490863&in_page_id=62&position=moretopstories


Indebted borrowers repaying their creditors through informal repayment plans may be able to have the interest on their debt frozen under new government proposals.




The Government has launched a consultation paper today on debt repayment, seeking views on a range of measures to protect borrowers from high fees and unscrupulous Debt Management Plan (DMP) providers.

Its proposals, which come at a time when personal insolvencies are at record highs, may prevent people from having to sell their homes to pay off their debts and ban draconian enforcement procedures by creditors who act outside the courts.

A DMP is usually an informal repayment plan agreed between the borrowers and their creditors, where interest is usually not frozen and the borrower may lose their home if they fall behind on payments.
It has also been criticised by some debt advisers for keeping borrowers in debt for too long: some plans can last up to 15 years in an effort to force people to pay off their loans in full.

Although there are no official figures on the plans, it is estimated there are between 100,000 and 150,000 people currently in DMPs.
Unlike other debt options such as bankruptcies, it is widely believed a large number of DMPs are not followed through to completion. Borrowers are then forced to consider other options like a more formal and stringent repayment plan such as an Individual Voluntary Arrangement (IVA) or filing for bankruptcy, often after paying large fees to firms that arrange the DMP for them.

Justice minister Bridget Prentice said: 'Debt can affect all kinds of people, especially in the current global economic downturn, and it is important that we protect people from sliding deeper and deeper into debt.
'We aim to benefit both debtors and creditors, ensuring debts can be paid off without the vicious cycle of charges, interest, fees, confiscated assets and relentless creditor contact that can turn a debt problem into a debt nightmare.'

The Government wishes to know if tighter regulation is needed in the plans. If interest was frozen and borrowers homes were more protected, the plans would be more akin to an IVA: these formal plans usually last for five years, involve writing off a large part of the debt and the borrower's home cannot be seized like in a bankruptcy.

The consultation hopes to raise awareness about the benefits and pitfalls of DMPs by publishing guidance for debtors on what to expect from plan operators. It is part of a White Paper published in July aimed at helping consumers. Other measures proposed as a part of the White Paper include changes in eligibility criteria for homeowners getting income support.