Debt Solutions

IVA

• How it Works
• IVA stands for Individual Voluntary Arrangement. It is a formal agreement between you and your unsecured creditors, which allows you to make repayments based on what you can afford. These payments are made each month, usually for five years. At the end of this time, any remaining debt you have is written off. In addition, your creditors can no longer contact you.
• Who could benefit?
• IVAs tend to be a good solution for people who cannot afford to pay off their unsecured debts in a reasonable amount of time, but have a steady income allowing for smaller regular payments. To be eligible, you must have £6,000 of debt and more than one creditor. IVAs are only available to people living in England, Wales, or Northern Ireland. If you live in Scotland, a Trust Deed is a similar solution.

IVA for a Self-Employed Individual

• How it Works
• As with a typical IVA, this solution involves making monthly payments to your creditors based on what you can afford each month. This type of IVA can offer a lot more flexibility with monthly payments, however, to account for seasonal variations in income.
• Who could benefit?
• To be eligible for this kind of IVA, you must have £5,000 or more of debt. It is also important that you are able to predict fairly accurately your business’ income throughout the year. You must live in England, Wales, or Northern Ireland.

Trust Deed

• How it Works
• In a Trust Deed, you make a single monthly instalment towards your unsecured debts. This is based on your income and expenditure, so is tailored to be affordable for your circumstances. You usually make these payments for four years, at the end of which any remaining debt is written off.
• Who could benefit?
• A Trust Deed might be the right solution for you if you live in Scotland and have more than £5,000 of debt. The solution also works best for people whose income is consistent enough to manage fixed monthly payments. Creditors are most likely to agree to arrangements which ensure they are repaid 10p or more per £1 owed.

Debt Arrangement Scheme

• How it Works
• The Debt Arrangement Scheme (DAS) was introduced to Scottish law in 2004. Unfortunately no equivalent solution is currently available to people living in England. As with a Trust Deed, a DAS protects you from your creditors taking legal action against you, and allows you to repay your debts in affordable instalments. Unlike a Trust Deed, there is no fixed repayment term, but the plan will generally last for less than 10 years. During this time, interest and fees on your debts are frozen.
• Who could benefit?
• Anyone who lives in Scotland and has one or more debts is, in theory, eligible for a DAS. It could be a good solution if you have a stable income, and could afford monthly payments if they were lowered. It can also be a suitable alternative if you do not have enough debt to qualify for a Trust Deed.

Administration Order

• How it Works
• If you have a County Court Judgement against you, an Administration Order can prevent your creditors from taking further legal action against you, and protect your assets. Instead of making multiple payments to multiple creditors, in an Administration Order you make a single monthly payment to the court, who then distribute it among your creditors. There is no set length of time for which the Order can be in effect, but it tends to be around three years. Interest and fees on your debts are also frozen as you repay them.
• Who could benefit?
• To be eligible for an administration order, you must have debts totalling less than £5,000, and owe at least two creditors. This solution also works best for people with a steady stream of disposable income. If your debts exceed £5,000, a solution which writes off some of the debt, such as an IVA, might be a better solution.

Bankruptcy

• How it Works
• Bankruptcy is usually considered a last resort for people who are unable to pay off their debts in a reasonable amount of time. The bankruptcy process involves transferring control of your finances to an Official Receiver, who works out the fairest way for you to repay some of what you owe to your creditors. The Official Receiver might decide to raise funds through the sale of your assets, and you may also be required to make a monthly contribution to your debts from your income, but only if this is affordable. At the end of the bankruptcy process, which usually lasts a year, any remaining debt you have is written off.
• Who could benefit?
• Although bankruptcy is generally a last resort, it is a relatively quick way to give yourself a fresh start financially. If paying off all of your debts seems unrealistic, and your income will not allow for a regular, long-term repayment plan, bankruptcy might be a better fit for you. Bankruptcy also prevents your creditors from making further contact with you – they must instead mediate through your Official Receiver. However, do bear in mind that it costs £680 to apply for bankruptcy. Bankruptcy is only available to people living in England, Wales and Northern Ireland. If you live in Scotland, Sequestration is considered equivalent.

Sequestration

• How it Works
• Sequestration is the Scottish equivalent to bankruptcy, and is, similarly, usually used as a last resort for dealing with unmanageable debt. During sequestration, a licensed Insolvency Practitioner takes control of your assets, and decides what to sell and how to distribute the profits among your creditors. As with bankruptcy, you may also be required to make a monthly income contribution towards your debts if this is affordable. At the end of the process, which usually lasts a year, any remaining debt is written off.
• Who could benefit?
• If you are unable to make a monthly contribution to your debts, sequestration might be a good alternative to entering into a Trust Deed. The fee for applying for sequestration is £200, but if you have a low income and few assets, you could be eligible for the Minimal Assets Process (MAP). This version of sequestration also writes off your debts, but only costs £90 to apply for, and lasts for six months rather than a year.

Debt Consolidation Loans

• How it Works
• A debt consolidation loan is a loan which is taken out in order to repay other debts in full. For example, you might owe money on two credit cards and one payday loan, and choose to take out a fourth line of credit to settle these debts. This would leave you with only one debt to repay, which may have a lower interest rate so work out cheaper in the long run. This is an informal debt solution, which means that it will not be recorded on an Insolvency Register, or affect your access to further credit.
• Who could benefit?
• This can be a helpful solution if you feel able to repay your debts in full, but want to simplify the process and save money doing so. You will still have to pay interest and any fees you incur, but this solution could benefit your credit score, assuming you keep up with repayments, and you will have more time to repay everything. You will need a fair amount of disposable income each month for this solution to work well for you.

Debt Management Plan

• How it Works
• A Debt Management Plan (DMP) is a revised repayment plan agreed between you and your creditors. You can negotiate this new repayment plan with your creditors yourself, hire a private firm to organise it for you, or go through a debt charity. In some cases, creditors will agree to freeze interest on your debts to help you pay them off faster, but this is not guaranteed. DMPs are an informal debt solution, meaning that creditors are not legally bound by them, and could still take action against you in order to recover your debt.
• Who could benefit?
• If you feel able to repay your debts in full given smaller payments over a longer period of time, a DMP could be a viable alternative to a formal solution such as an IVA or Trust Deed. Unlike a formal debt solution, no record of your DMP will be kept, and it is less likely to negatively affect your credit score. A DMP can also be flexible if you find yourself able to repay your debt faster.

Debt Relief Order

• How it Works
• A Debt Relief Order (DRO) is a low-cost alternative to bankruptcy, available to people living in England and Wales. It is similar to the Scottish MAP. If you are granted a DRO, you will not have to make any payments towards your debts for one year. After this, if your circumstances have not improved, your debts are written off entirely.
• Who could benefit?
• If you have debts of less than £20,000, less than £50 surplus income each month, and your assets do not exceed £1,000 (excluding a vehicle, which may also be worth up to £1,000), you are likely to be eligible for a DRO. This solution could be best for you if you have few assets, and are unable to make a monthly contribution towards your debts.

Debt Settlement Offer

• How it Works
• A Debt Settlement Offer (DSO) involves settling your debts with one lump-sum payment. By explaining to each creditor that your situation is unlikely to improve in the near future, but that you currently have a lump sum available, you may be able to negotiate a final payment in exchange for your debt being settled in full.
• Who could benefit?
• If you feel comfortable negotiating with your creditors yourself, and have access to a large lump-sum, this could be a quick way to write off your debts and achieve a fresh start. It can be risky, though, as creditors are by no means guaranteed to agree to your offer.