DMP and defaults

ForumPerson

I've applied for a DMP with StepChange. 1. Should I have defaulted first?
2. Does default simply mean missing payments or paying less or is it other official action? 
3. I regularly have made payments albeit sometimes minimum and now have stopped whilst I await DMP outcome. I'd regularly pay then reuse the credit as I'd be paying more interest than off the actual balance. 

Now I'm worried after reading further than an account marker could be placed which is clear 6 years after balance clearance rather than default lasting which is clear after 6yrs regardless of the balance.

Please help!

sourcrates

OK, ideal scenario is that you stop paying your credit debts, they go through there standard collection activity with you, whilst you save an emergency/settlement fund.

During this time, your creditors would ideally default all your accounts, and either assign them to debt collectors, or sell them on to someone else.

That was the usual course of events up until covid hit, as more people were unable to pay their debts, the FCA intervened and changed guidance to creditors, asking them to be more thoughtful and aware of a customers situation.

All well and good I hear you say, but this has had the effect of them not defaulting accounts as soon as they once did, a default marks the end of the relationship between you, it closes the account for good, and all interest etc is frozen from that point on, a default is also registered on your credit file.

Now for those with short term issues, its great, they can repay their arrears, and continue using the account once they are cleared, should they wish too, and the creditor retains your custom.

Not so good for longer term problems especially those entering debt management.

There are other ways to get defaults, using the complaints process, and paying less than the contractual repayment should trigger defaults after a time, but also risks AP markers, all of this makes it hard to advise on the best course of action currently.

ForumPerson

Ok so once my DMP is hopefully sorted by Step change

1. do I ask for a pause before starting DMP plan (if that's actually a thing) and begin savings before commencing plan. If so how long for?

2. Can I go along with dmp and ask StepChange to ask creditors to mark as default and not payment marker?

RAS

You are extremely unlikely to get credit again for a number of years. Do you have one month's salary in savings right now? 

If not, you need to start saving pronto, as in putting everything you were going to pay towards the DMP into savings for a few months.

And have you regular monthly allowances in your DMP budget for emergency funds, clothing, medical and dental, insurance, car or house repairs etc? 

There are a lot of posts when people who started a DMP very quickly panic because they need new shoes, to get the car/bike back on the road, to replace a household item and gave no funds.

There is also a current poster who needed £500 to sort the car out last week. At least they'd already saved £900 by delaying his DMP. Or they'd have been up the creek. They have had an early lesson in the importance of an emergency fund and if the need for a budgeting fund for annual costs like car repairs.

sourcrates

You should have a good emergency fund saved, how much depends on your budget, and/or what you are comfortable with, but around 1k minimum.

Stepchange will have no interest in being your personal messaging service, "if you want out doing, do it the sen" is what my dad always told me, and that advice is still relevant today, "you" can by all means write and ask your creditors to default your accounts, in fact I would encourage you to do so, but don`t expect stepchange to do it for you, they will have zero interest in doing that.

ForumPerson

Thanks the feedback has been most helpful I'll keep you posted how I get on 

ForumPerson

Thank you all for your help so far. StepChange are setting up dmp as previously discussed. I am thinking of withdrawing from this process by letting them know today as not all accounts have defaulted and after reading forum realised I should stop paying for a few months to default (rather than marker) and save up some emergency funds, something I wasn't fully aware of before. 

My questions are 
1. How do I know when I will default? Do I just wait 6 months after last payment or do they send a letter with the term "default" used

2. Do I then go onto a self managed dmp with each business I owe as they hit the 6 month mark? 

Any advice appreciated thanks

Rob5342

They'll send you a letter giving you a chance to get up to date before they default, and they should write again saying they have. The length of time that takes depends on how difficult they decide to be.

As long as you have enough of an emergency fund built up then you can start paying at that point. Personally I'd draw up a budget of what I'd be paying each creditor, and either save pay it to them or save it, depending on if they had defaulted or not.

sourcrates

ForumPerson said

Thank you all for your help so far. StepChange are setting up dmp as previously discussed. I am thinking of withdrawing from this process by letting them know today as not all accounts have defaulted and after reading forum realised I should stop paying for a few months to default (rather than marker) and save up some emergency funds, something I wasn't fully aware of before. 

My questions are 
1. How do I know when I will default? Do I just wait 6 months after last payment or do they send a letter with the term "default" used

2. Do I then go onto a self managed dmp with each business I owe as they hit the 6 month mark? 

Any advice appreciated thanks

Allow me to explain the process so as to avoid any late night panic once you receive your first default notice.

"Default notice served under section 87(1) Consumer Credit Act 1974"

A default notice is a statutory requirement, that must be sent by your lender under section 87 of the consumer credit act, it is strongly worded in order to instil a sense of urgency to the debtors response.

The default notice will give you 14 days in which to remedy the breech to your agreement, by paying all default sums in arrears to bring your account up to date.

It will go on to list enforcement action the creditor "could" take if you do not comply with this notice etc etc.

You do absolutely nothing, you allow the notice to expire, and in the majority of cases, that will be that, your account will be closed, the agreement will end, and a default will be placed on your credit file.

Now a number of things may then happen, your debt will either stay "in house" and the original creditor will chase you for the money, or, they may assign your debt to a debt collection agency, who will manage the debt, or they may sell your debt to a 3rd party, or a combination of all of these measures.

When you jump in and engage with whoever is writing to you after that is up to you.

ForumPerson

Thank you, I feel more empowered after your advice and also reading other threads on here. I have today contacted StepChange and withdrawn from the dmp process. I am now doing the following

1. Stopping all payments in the hope they default me, fingers crossed this is within 6 months

2. Saving for an emergency fund

3. Ignoring calls / letters - would registering for breathing space help or should I pull this card at a later date if needed when getting closer to the 6month or so mark?

4. Once each creditor defaults then setting up my own dmp with each one by one, paying the most money towards the larger debt and less towards the smaller debt. Duration of dmp based on my SOA is 5years and in 6years provided my creditors all default me this will have dropped off my file.

Anything I have missed please share your wisdom 

2021rdsunshine

ForumPerson yes that’s the steps advised to start the process and that’s how I’m doing it since last November . 
As far as the “breathing space “ is concerned if you want to do it at the beginning you have to go through an approved organisation like Stepchange , it lasts 60 days. In my opinion it’s a waste of time because you just delaying the process if you know what I mean. What we want is for the creditors to default asap and that won’t happen if you apply for breathing space. I think is  useful for someone who is going through a very short period of financial difficulties but not as a long term plan. Also the duration of your DMP might be even shorter if, further down the line, your creditors or whoever owns the debt at the time, come up with reduced settlements offers as full and final payment for the debt. That’s what I’m hoping for myself and that’s what I intend to do with some of the money that I’m saving since November when I stopped paying my debts.