A debt management plan (DMP) isn't legally binding, so you can cancel it if you feel it isn't working for you. However, you may not get a refund of your fees and you'll need to make sure you have another way of dealing with your debts.
This page explains what to think about before cancelling your DMP and how to go about doing it.
When you enter an agreement for a DMP, you should be given information about your right to cancel, an explanation of whether you'll get a refund of any fees, and whether you will be charged a cancellation fee.
If you're not given this information, your DMP provider may be breaking the conditions of its FCA authorisation. You can make a complaint.
Can you cancel a DMP?
A DMP isn't a legally binding agreement. This means that you can cancel it if you want to. There are a number of reasons why you might want to cancel, including:
you're not happy paying a fee each month which means there's less money left to pay your creditors
the interest on your debts hasn't been frozen, so the problem is getting worse
your circ*mstances have changed for the worse and you're struggling to make the payments
you've come in to some money, perhaps through an inheritance or payment protection insurance reclaim, and are in a position to pay off your debts more quickly
you're not happy with your provider.
Before you cancel
Before you cancel your DMP, you need to think carefully about what will happen next. Ask yourself these questions.
How are you going to deal with your debts now?
Before you cancel your DMP you should think about how you're going to deal with your debts afterwards. When you cancel, the provider will tell your creditors, so they might start charging you interest and late payment fees again, as well as expecting you to resume higher payments. You'll also have to deal with your creditors yourself again. Think about how you're going to cope with this.
You should think about other debt solutions that would help you to deal with your debts before you go ahead and cancel your DMP.
Will you get a refund of any fees?
Whether or not you can get a refund of any fees or charges from your DMP will depend on what your agreement with the DMP provider says. Check the terms and conditions carefully to see if you can get a refund of some of your fees.
If you entered the DMP agreement over the phone or on the internet, then it is classed as a distance sale which gives you extra rights. You will have a cooling off period of 30 days. During this time, you can cancel your DMP for any reason and get a refund of any fees you've paid.
Will you have to pay a cancellation fee?
Your provider should have given you information about cancellation fees when you first entered your agreement. These fees should be reasonable.
Are you cancelling because you were misled?
DMP providers have to follow certain rules as a condition of being FCA authorised. These include not misleading you and making sure you have all the information you need to make an informed decision about starting a DMP. If you believe your provider misled you, perhaps by making claims that weren't true or leaving out important information, you can make a complaint as well as cancelling your DMP.
Cancelling your DMP
To cancel your DMP, you need to contact your provider and ask to cancel. They will inform your creditors that the agreement has been cancelled, so you can expect to start dealing with them yourself again.
Next steps
FAQs
When you cancel, the provider will tell your creditors, so they might start charging you interest and late payment fees again, as well as expecting you to resume higher payments. You'll also have to deal with your creditors yourself again. Think about how you're going to cope with this.
What happens if I cancel my debt review? ›
The following will happen after a consumer cancels debt review: The original contractual interest rates will become applicable again. Waived delinquent payment penalties may get levied against current accounts. Credit providers may start legal action as the consumer will no longer have protection.
Is cancellation of debt a good thing? ›
The Bottom Line
If you are facing serious financial difficulties, you may be able to get all or a portion of your debts canceled. However, debt cancellation can have long-term negative consequences to your credit, and you should consider it only when there are no better alternatives for you.
Can creditors reject DMP? ›
Sometimes a creditor will refuse to deal with a DMP provider. This could be because the creditor doesn't want to accept the reduced payments or sometimes it could be because they've objected to you using a fee-charging provider, which would mean there's less money to pay the debts you have with them.
What are the disadvantages of debt cancellation? ›
You May End Up with More Debt Than You Started
Stopping payment on a debt means you could face late fees and accruing interest. Additionally, just because a creditor agrees to lower the amount you owe doesn't mean you're free and clear on that particular debt.
Can you come out of a debt management plan? ›
But if you change your mind, you can cancel a DMP at any time. Some of the potential reasons you may consider canceling your DMP include: Your financial situation has improved and you no longer need the DMP. You've received a windfall of cash and can pay off your debt in full.
What happens after debt cancellation? ›
The IRS considers most forms of forgiven, canceled or settled debt as income for tax purposes. If the amount of your canceled debt is more than $600 and it's considered taxable, the lender is required to send you a 1099-C form, which includes the canceled amount that you'll need to report.
Does cancellation of debt hurt your credit score? ›
Debt forgiveness may negatively affect credit scores, making it challenging to obtain future loans or credit. Forgiven debt of more than $600 may be considered taxable income, potentially resulting in a hefty tax bill.
Can I skip one month on debt review? ›
Missing a monthly repayment under debt review can have various consequences, and it's essential to manage and rectify the situation promptly to maintain the benefits of being under debt review. If you miss a monthly payment, credit providers will terminate the plan and institute legal proceedings.
Does cancellation of debt affect your tax return? ›
In general, if your debt is canceled, forgiven, or discharged for less than the amount owed, the amount of the canceled debt is taxable. If taxable, you must report the canceled debt on your tax return for the year in which the cancellation occurred.
Unfortunately, there is no such thing as a government-sponsored program for credit card debt relief. In fact, if you receive a solicitation that touts a government program to get you out of debt, you may want to think twice about working with that company.
Can a creditor still collect after issuing a 1099-C? ›
In this event, the account is still delinquent, but the debt hasn't been forgiven, so the lender may still try to collect. The IRS amended the rule later that year, so creditors are no longer expected to file a 1099-C just because it's 36 months past due. But it is possible for it to still happen.
Can I keep my bank account on a DMP? ›
Your Bank Account & A Debt Management Plan
In conclusion, a Debt Management Plan (DMP) does not directly affect your bank account. You can usually continue using your current bank account as usual when you enter a DMP providing that you do not wish to include a debt on your DMP that is with your bank account provider.
What happens if I can't pay my DMP? ›
Missing a payment will mean your creditors don't get the monthly payment they're expecting, which may mean they decide to stop co-operating with your DMP. Don't bury your head in the sand, as this will only make the problem worse. Talking to your provider quickly is the only way to get the problem sorted out.
Can I get credit if I have a DMP? ›
Even if you're in a DMP, your creditors may still record that you've missed payments, as you'll be paying less than you agreed to when you took out the original credit agreement. This will mean you could find it harder to get credit while you're making reduced payments and for some time afterwards.
What happens if I drop out of a debt relief program? ›
If you cancel your debt relief program, you may: Lose any fees you've already paid to the service provider. Become responsible for repaying your full debt amount, possibly with added interest or fees. Face continued or intensified collection efforts from your creditors.
What happens if I cancel my debt agreement? ›
Effects of terminating a debt agreement:
Creditors can commence or continue recovery for the payment of debts that you owe (including interest). Creditors can apply to make you bankrupt through court. Information about your debt agreement will remain on the National Personal Insolvency Index (NPII) for a limited time.
Can you take a break from a DMP? ›
Taking a break can provide temporary relief, but it will extend the duration of your DMP, taking you longer to pay off your debts. Also, bear in mind that while you may not be making your monthly payments, it's possible that your creditors will continue charging you interest, fees or charges.
