Will a Debt Management Plan (DMP) Affect My Job?

Will A Debt Management Plan Affect My Job

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If you are thinking about starting a Debt Management Plan (DMP) but are worried about how it might affect your job, you’ve come to the right place.

Every month, over 170,000 people visit our site looking for guidance on debt solutions.

In this article, we’ll cover:

What a Debt Management Plan is and how it works
Whether your employer will find out about your DMP
If you can still enter a DMP if you’re a boss at a company
The good and bad parts of a Debt Management Plan
Other ways to deal with debt that you can’t pay back

Dealing with debt can be challenging, and it’s common to feel unsure about seeking help. In fact, Citizens Advice revealed that 60% of adults facing financial difficulties hesitate to seek assistance.¹

Some of us have been in your shoes, you’re not alone. We’re here to help you learn more about how a Debt Management Plan might affect your job.

Will My Employer be Informed?

Your employer is not informed by your DMP provider or your creditors about your debt management plan.

You are also under no obligation to inform your employer about your DMP.

Furthermore, since a DMP is an informal solution, your name and details will not get logged into any official register (such as the Individual Insolvency Register).

Hence, there’s virtually no way for your employer to find out about your DMP unless you tell them yourself.

Even if your employment contract states that you have to inform your employer when you become insolvent, you don’t need to tell them about it. This is because a DMP is an informal solution and entering into one does not mean you are formally insolvent.

A debt management plan is an informal solution that involves you paying back unsecured debts in the form of reduced payments according to an agreed-upon repayment plan.

These payments are made by you through your own bank account.

These payments are not taken directly from your wages, thus, it has nothing to do with your place of employment.

In any case, I’ve seen that most people start performing better at their jobs once they enter into a DMP. This is because a DMP addresses their debt problems and they are able to give their full attention to the tasks at hand rather than worrying about their debts.

Additionally, since a debt management plan is an informal option of taking care of your debts, it’s also quite flexible in terms of your payments.

Thus, if in the future, your employment status changes, changes can be made to the terms of your DMP to accommodate your reduced income.

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Can I Enter into a Plan if I’m a Company Director?

Legally, there’s no reason why you should not be able to continue your career as a company director if you enter into a DMP.

Entering into a DMP does not mean that you are formally insolvent.

Thus, you are not required to make your financial situation known to your fellow directors if your contract states that you are to inform them if you become insolvent.

That being said, there’s one thing about being a company director with a DMP that you need to be aware of. If you are a company director, there’s a chance that you may owe money to HM Revenue and Customs (HMRC).

This could be either Tax debts, VAT arrears or both.

It’s important to note that debts owed to HMRC cannot be included in a DMP.

If you have such debts, then you may want to opt for some other type of debt solution. You can ask your DMP provider for debt advice about which debt solution you should go for.

You can also opt to contact a debt charity as they’ll be able to provide you with debt help for free.

They will assess your financial situation including your finances, income, living costs, etc. and provide you with options that are most suited to you.

Be sure to seek debt advice from an agency that is authorised and regulated by the Financial Conduct Authority. The Financial Conduct Authority (FCA) has a strict set of guidelines which are enforced to ensure that you, the debtor, are treated fairly.

Make sure to keep your creditors in check to ensure that don’t pursue legal action against you while you’re seeking debt advice.

A Comparison of Debt Solutions

As mentioned earlier, it might be worth considering other debt solutions if you’re a director.

To assist you in making the right choice for your situation, I’ve put together this table comparing a Debt Management Plan with other debt solutions

DMP vs Alternative Solutions	How It Can Help Tackle Debt	Suitable For Individuals…
Debt Management Plan (DMP)	An informal agreement to pay back non-priority debts in a more manageable way, but does not write off any debt.	…seeking a flexible arrangement without legal proceedings.
Debt Relief Order (DRO)	A formal solution that freezes debts for a year, after which they may be written off.	…with a total debt under £20,000, low income, and minimal assets, who cannot afford to pay off their debts.
Individual Voluntary Arrangement (IVA)	A formal, legally binding agreement that typically lasts for 5 years and can write off a portion of your debt at the end. Credit rating will be negatively affected. Homeowners can keep their home.	…with a larger amount of debt who can commit to a fixed repayment plan and want to avoid bankruptcy.
Bankruptcy	A formal legal process that writes off most debts but has significant consequences, including potentially losing your home and negatively impacting your credit rating and job prospects.	… with significant debts that cannot realistically pay them off. More severe option with substantial consequences.
Consolidation Loan	A consolidation loan involves taking out new credit to pay off existing debts. It can simplify payments and potentially reduce interest rates. But, you could also end up paying more interest overall.	.. with multiple debts looking to consolidate into a single payment, usually with a good credit score to obtain favourable terms.
Payment Holiday	Payment holidays offer short-term relief by pausing or reducing payments. Payment holidays don’t reduce the total debt amount and are usually for a short duration.	..with short-term financial difficulties needing temporary relief from debt payments.
Equity Release	Equity release involves homeowners releasing equity from their property. It provides a lump sum or additional income by using the home’s value but reduces the property’s equity.	…with debts and want to unlock the value in their home to pay them off, reducing their property’s equity. (Ideally for older homeowners, usually 55+)
Informal Negotiation	Informal negotiation is not legally binding and involves negotiating with creditors for better terms.	…with debts and wish to negotiate terms independently and prefer to have a flexible, non-binding arrangement with creditors.

How a debt solution could help

Some debt solutions can:

Stop nasty calls from creditors
Freeze interest and charges
Reduce your monthly payments

A few debt solutions can even result in writing off some of your debt.

Here’s an example:

Situation

Monthly income	£2,504
Monthly expenses	£2,345
Total debt	£32,049

Monthly debt repayments

Before	£587
After	£158

£429 reduction in monthly payments

If you want to learn what debt solutions are available to you, click the button below to get started.

Get started

Will It Harm My Job?

In most cases, entering into a debt solution does not affect your job in any way.

However, there do exist some circumstances in which your job could be affected. This depends on the type of job you have as well as the type of debt solution that you opt for.

For example, there are some jobs in the financial sector which require you to have a perfect credit rating.

Examples of this may be if you have a career in banking or accountancy.

Debt solutions reduce your credit rating by quite a lot. In such cases, your job may definitely be affected.

As I mentioned earlier, most jobs are not affected by any debt solutions that you decide to opt for. Furthermore, out of all the debt solutions available in the UK, a debt management plan is one of the most informal ones.

Thus, for some jobs, you may find that if you had opted for a more formal debt solution (such as an IVA or bankruptcy), then your job may have been affected but a DMP does not harm it in any way.

While it’s true that most jobs are not affected by any debt solution which you may opt for, if you have any doubts at all, you should contact your company’s HR department.

Your HR department is obligated to keep your enquiry confidential.

Thus, you will be able to find out if a DMP affects your job in any form without the enquiry itself harming your employment status.

If your job requires you to keep a clean credit record and/or if your employer performs regular credit checks on you, then you might want to think twice before entering into a DMP.

This is because a DMP involves you making reduced debt payments towards your creditors which causes your credit score to fall.

Out of every debt solution that is available in the UK, bankruptcy is the one that has the highest negative effects on most jobs. Following bankruptcy are IVAs and then DMPs which are the least formal and have the least amount of effects on your job.

References

StepChange – Credit safety net report