Last updated: 23/07/2020 | Estimated Reading Time: 3 minutes
What to do if your debt management company goes bust
Debt management companies close for several reasons, including failing to meet the standards expected by the Financial Conduct Authority (FCA), or just going out of business due to financial problems. If your debt management company has closed down, you may be wondering what to do next. What happens financially? Where do you go from here? Here’s a simple guide that takes you through questions you may have and what to do to next.
In This Guide:
- What happens to the money you originally paid to the debt management company?
- Are you still liable to pay outstanding debts?
- What are the alternative routes to take now?
What happens to the money you originally paid to the debt management company?
The first thing to do is to stop any further payments to the company. From now on, you will need to change arrangements to pay off your debts. If you continue to pay money to a company that’s no longer in business, it may not get to the creditors and could well be lost.
You shouldn’t have to worry about the money you have already paid into you plan. Money should have been distributed to your creditors in accordance with the terms of your agreement. The FCA states that any money paid into your plan should be distributed to creditors within 5 working days. This means that you will suffer no financial loss and the outstanding debts will remain the same as they would have been had the company not gone bust. However, if you are concerned that money you have paid into a company that has recently gone bust has been lost, contact the FCA. They will be able to give you details of the company's administrators, who will let you know what is going on and if you can get your money back.
Are you still liable to pay outstanding debts?
The short answer is yes. Even though the company has now stopped trading it does not mean you are no longer liable for the debt you owe. You should be aware of what the outstanding balance is from the last given statement. However, if you are unsure you should speak to your creditors. Let them know about your situation and explain how you intend to repay them.
What are the alternative routes to take now?
New Debt Management Plan:
There are various different organisations and companies that can help you with this. You can work with a new commercial debt management company. They will charge a fee each month for the management of your plan. However, the alternative to this is to use a debt charity who will manage your plan for free.
Start your own plan:
This involves self-management of your debt and how the money will be repaid to creditors. However, in order to do this, you need to be confident in your management skills and be sure you will be able to make multiple payments on time. Being able to handle negotiations with creditors will also be essential.
Individual voluntary arrangement:
This arrangement allows you to settle your debt in a fixed period of time and is particularly helpful if you’re struggling with the debt. They normally last about 5-6 years and anything outstanding at the end of the arrangement is then written off. There is no standard amount that you will have to pay into your IVA. The payments you will be required to make are based your disposable income.
Trust deeds are legally binding arrangements where you make reduced payments over 4 years, after which the outstanding debt is written off. However, this is a scheme only available in Scotland.