There are a range of debt solutions for people in debt and we’re evaluating them all. This helps give you the chance to explore all the various options.
The range of debt solutions in England, Wales and Northern Ireland include a bankruptcy, debt management and IVA. We explain in full detail exactly how we can help.
This is probably the most commonly know name of all the debt solutions. However the truth is it is the last resort for many people entering into an insolvency solution.
To enter bankruptcy you need to go to your local courts to pick up the relevant paper work you fill it out and return it to the courts, at this stage you make a payment £525.00 if you are on benefits and £700.00 if you are in employment.
Once your forms have been received you will be appointed an official receiver, it will be the official receiver who ultimately decides if there will be an income payment order made.
Bankruptcy itself last for 1 year however if you are making income payments then they will last for 3 years. Your credit rating will be affected for 6 years.
If you own a property with equity, or a vehicle worth over £3,000 then you will be asked to sell these.
Debt Management Plan (DMP)
DMP is an informal arrangement between you and your creditors; due to the fact that it is informal either party can stop it with one months notice. You make one monthly payment towards your creditors and this is distributed amongst them. The company dealing with your DMP will ask for the interest and charges though this is not guaranteed. You will repay the debt until it is all paid off in full. The length of time a DMP last will vary it depends how much you pay each month, what your level of debt is and if the interest and charges are frozen.
Debt Relief Order (DRO)
DRO if your debt is below £15,000 and you have less than £50.00 disposable income a month then you would be suitable for a DRO it is a form of bankruptcy. You must not be a homeowner and your vehicle must be worth less £3,000. It costs less than actual bankruptcy to enter at £90.00.
Individual Voluntary Arrangement (IVA).
An IVA is a formal debt solution when you make one monthly payment towards your debt for 5 years at the end of this period of time the any remaining debt will be written off. It guarantees to freeze interest and charge.
It does protect your house as you will never be asked to sell, however they will look at the equity at the 4 ½ year stage, if they believe there is sufficient then they will ask for the equity to be released, either by remortgaging or a third party buy out, if this is not possible then they will extend your solution from 5years to 6 years.
To enter an IVA you need an insolvency practitioner to put a proposal to your creditors, ultimately it is up to the creditors to decide if they will accept.
Once in the IVA the creditors are no longer able to chase you for payment.
Scottish debt solutions are completely different! There is no IVA or debt management option and bankruptcy is known as sequestration.
Sequestration is the Scottish equivalent to bankruptcy. Sequestration itself is when a person or company take you to court.
They can ask for your assets to be sold, they will also want an income and expenditure to be done and it will ultimately be the courts that decide what if anything you contribute towards your debt.
The Sequestration option can help a person start again financially but it has long term implications for a person’s credit score.
Certificate of sequestration
If you are earning more than £235.50 a week then you would qualify for a certificate of sequestration. The certificate will write off your debt however you may be asked to contribute towards your debt depending on your disposable income.
Low Income Low Assets (LILA)
If you earn less than £235.50 a week have no assets and your vehicle is not worth more than £3,000 then you would qualify for a LILA.
Debt Arrangement Scheme (DAS)
This is the Scottish version of a DMP though it guarantees to freeze all interest and charges. Your property will be protected however your debt must be repaid within a reasonable period of time. This is seen as within approximately 10 years.
Your credit rating will be affected regardless of what debt solution you enter, if you default on your monthly contractual payment then this can also affect your credit rating. Your credit rating will be affected for 6 years and this will mean that getting any further credit within this period of time very difficult. The only way to rebuild your credit is once the default has been lifted is to borrow and repay on a monthly basis.
If you inherit money whilst in a formal debt solution then you will have to repay the debt including fees and charges. The same would apply if you won the lottery.
What is best for you?
No one can answer that question without gaining information from you; they need to know where you live? What your level of debt is? What your income is and what assets you have it is only at this stage that a debt advisor will be able to advise you on what is the best solution to suit your own individual circumstances.
If you are struggling to repay your debt the sooner you seek advice the better there may be more solution available the earlier you seek advice.
Owing family and friends.
No creditor can be seen as a preferential creditor and they must all be treated the same you cannot pay back family and friends and not your creditors.
Negotiate with creditors
If your situation is temporary and your cash flow situation is likely to change in the near future then it may very well be worth while negotiating with your creditors. You can ask them to freeze interest and charge and accept token payments. They are not obliged to do this though many creditors are willing to accept it as a short term solution.