Options for dealing with debts
Even if your debts make you feel like it's the end of the world, there are still options. Below we have outlined the main four options you have. If you are in this situation we recommend having a word with a qualified debt advisor - there is a lot of free help available. They will help you through the next steps and help you see the light at the end of the tunnel.
Debt Management Plan (DMP)
This is an informal arrangement to pay your creditors a certain amount per month. It is arranged by a third party company (Debt Management Company or DMC) that will charge a fee for their service which is usually taken from your first few months’ payments. Your monthly payment is made to the DMC and they send on the agreed payment to your creditor. There is usually no upper or lower limit to the amount of debt that can be dealt with in this way but you must have some available income each month.
Individual Voluntary Arrangement (IVA)
This is a formal payment plan arranged by an IVA trustee. It can be the best option if you have property or work in certain occupations that would be adversely affected by other forms of debt relief. It can last between 3 and 5 years and can result in a lot of your debt being formally written off as the creditors will agree to this as part of the payment proposal. The payments are made to the IVA company who disperse it to your creditors. There are fees for this kind of arrangement but these are incorporated into your arrangement and the creditors start to receive payments as soon as you make your payments to the IVA company. There is usually no upper or lower limit to the amount of debt that can be dealt with in this way but you must have some available income each month.
This is a formal, court-based, process in which an Insolvency Trustee is appointed to look into your finances and agree a repayment order, if there is any available income. The payment period is usually 3 years but could be extended depending on how you came to be in debt. The fees are quite high, £525 for the Insolvency Trustee and £180 for the court application, although some people may not have to pay this part. There is no upper limit to the amount of debt that can be dealt with in this way but if you have less than £15000, you may be advised to apply for a Debt Relief Order instead.
Debt Relief Order (DRO)
This is formal process, but doesn’t involve a court appearance, to apply to have your debts frozen for 12 months, and written-off afterwards if your finances have not improved in that time. The application must be made by an Authorised Intermediary. To be eligible for this type of debt relief your debts must be less than £15000, must not own a car less than 10 years old or have assets worth more than £300, and you must have less than £50 available income after your everyday expenses have been paid. There is a fee of £90 but this is for the Insolvency Service to look into the application, the Intermediary does not make a charge for their service.