Do I Have to Include All Back Debt in a Debt Management Program?

One issue that many borrowers consider before enrolling in a debt management plan is whether or not they should include all back debts. Generally, all unsecured debts must be included; however, there is an exception. Loans that are secured by assets can't be included, since their payments aren't usually negotiable.

Debt Management Plan Expectations

Debt management plans, DMP, that are administered by nonprofit agencies are voluntary agreements and can be terminated by either party. Participants should be aware, however, there are rules that must be followed in exchange for the friendlier repayment terms that the DMP provides. The biggest expectation is that the participant will include all back debts that are eligible for the program. Participants should also avoid using credit during the repayment period. Lenders expect to see that the participant is undergoing credit counseling while the debts are repaid.

How Debt Management Plans Work

A consumer who is behind or about to be behind on his loan payments contacts a credit counseling agency for consulting. The counselor may suggest entering a debt management plan. In a DMP, the agency will negotiate with the lenders on behalf of the participant; this negotiation usually results in lowered interest and possibly payments. The account is brought current once the participant begins making regular payments to the agency, which the agency distributes. Accounts are paid in full, usually within five years. They're also closed. This ensures the participant will not run up additional debt during the repayment period.

Secured and Unsecured Debts

Counseling agencies want to see all unsecured debts enrolled in the DMP so that each lender is treated fairly. Delinquent loans on secured assets, like cars or homes, are not eligible for inclusion in a DMP. However, if you need a credit card for your job -- for example, if you entertain frequently or travel -- then you may be permitted to keep one card open. The expectation is that the borrower will pay this bill in full and on time every month. Debts that are owed to a taxing authority, such as the IRS, or to friends or family are also not included in a DMP.

If You Back Out

If you decide to back out of a DMP because you don't want to include all of your debts, contact your counseling agency first. Although the lines will be reinstated, so will the higher interest rates. The lender may also consider your account to be in default, and may opt to proceed with collection action. It may also begin contacting you again -- something you probably wanted to avoid. If you have been making extra payments and your account is paid in full, it's essential to notify the counseling agency. If it's not notified, then it may consider your account failed, and report it as such to your lenders.