Alternatives to Individual Voluntary Arrangements in the UK include:
Debt Management Plan (DMP)
A DMP gives you longer to pay off your debts, with a single affordable monthly payment which is distributed among your creditors. This gives you peace of mind knowing that you are paying off your debts in a sustainable way. A DMP can be arranged by a debt specialist. They can negotiate with your creditors to freeze interest and charges, but because a DMP is a voluntary agreement there is no obligation on your creditors to do this. You may also pay a fee to the company who set up the DMP, for the work they do in negotiating with your creditors, setting up the DMP and distributing your payments.
Alternatives available in England, Wales & Northern Ireland include:
An Administration Order is a type of repayment plan where you pay what you can afford to the court, who distribute it to your creditors on your behalf. You don’t pay a fee for this. To qualify you must have less than £5,000 in unsecured debt, and at least one court order against you. An Administration Order freezes interest and charges on your debt and stops your creditors from taking any further action to recover the debt. If you’re unlikely to be able to pay off the whole debt in a reasonable timeframe, the court can set a date after which the remaining debt will be written off.
Debt Relief Order
A Debt Relief Order is a route into bankruptcy for people with low income and low assets. To qualify for a Debt Relief Order you must owe less than £15,000 in unsecured debt, you must not own a home, if you have a car it must be worth less than £1,000 and any other assets you have must be worth less than £300. Your disposable income (after you’ve paid essential bills) must be less than £50 a month. You do not have to contribute from your income. The DRO will freeze the interest on your debts, and if your finances haven’t improved after 12 months, your debt will be written off. There is a £90 fee payable to the Insolvency Service.
Bankruptcy writes off unsecured debt, allowing you to make a fresh start. If your unsecured debts amount to more than any assets you have, you may be eligible. You pay a fee to your County Court, which varies depending on whether you live in England/Wales or Northern Ireland. You may be required to make a regular contribution from your income for up to three years, after which any remaining unsecured debt will be written off. You may also need to release equity in your home, or downsize to a smaller car. Although bankruptcy does have serious consequences, if you are unlikely to be able to pay off your debts in a reasonable timeframe, bankruptcy can give you a chance to start again.
Scotland has its own debt solutions including:
Debt Arrangement Scheme (DAS)
DAS allows you more time to pay off your unsecured debts with one affordable monthly payment which is distributed to your creditors. DAS is a legally-binding agreement which freezes interest and charges, and once in place, creditors are not allowed to take action to recover the included debts. Your house and car are not affected by a DAS, though you must keep up with your ongoing payments. There may be fees to set up and manage the DAS but you have the security of knowing that your debts will be paid off in full at a rate you can afford, and you are protected from creditor action.
A Trust Deed allows you to pay what you can afford towards your unsecured debts for up to four years, after which you will no longer be liable for the rest. If the majority of your creditors agree to the Trust Deed, it becomes Protected, which means creditors cannot take action to recover the included debts. Trust Deeds must be arranged by a qualified Insolvency Practitioner. Their costs are taken from the amount that is payable to your creditors so you do not have to pay any upfront fees.
Sequestration is the Scottish legal term for bankruptcy, which writes off unsecured debts, giving you a fresh start. You need to pay a fee to the Accountant in Bankruptcy, which is the government agency which oversees insolvency in Scotland. You may have to realise any equity in your home and downsize your car, and make regular contributions from your income for up to four years, after which you are no longer liable for any remaining unsecured debts.
Low-Income, Low-Asset (LILA) Bankruptcy
All debt solutions will have an impact on your credit rating for at least six years, although if you have serious debt problems your credit rating may already be affected. You may need to change your bank account to a basic bank account without overdraft facilities. Formal debt solutions such as IVAs, DAS, Trust Deeds and Bankruptcy will mean your name is placed on a public register. However these are mainly used by credit reference agencies and creditors. Debt advice and help is also available from non-profit agencies. Find out more at the Money Advice Service.