Debt solutions
Debt Management
If you have multiple debts you may benefit from expert help that's administered by a professional debt adviser. Debt management can alleviate much of the stress and administration necessary to set up and maintain repayment agreements with your lenders. There are both free and fee-charging organisations that will help you compile your Budget Plan and organise your repayment programme.
They'll typically conduct all negotiations, liaise with your lenders on an ongoing basis and distribute funds on your behalf. They may also be able to negotiate a freeze in interest and charges, and will provide ongoing help and support throughout your time on the Debt Management Programme. It's important that you understand what service you are getting before committing to any Debt Management Programme.
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Individual Voluntary Arrangement (IVA)
If you have a substantial amount of debt that would take an unreasonable amount of time to pay off, you may be more suitable for an Individual Voluntary Arrangement. An IVA is a formal, legally binding agreement between you and your lenders, where you usually pay a fixed amount over a fixed period – typically five years – and can only be administered by an Insolvency Practitioner. Once agreed, your lenders are bound by the agreement and are unable to apply any further interest and charges or take further action, providing you comply with your obligations.
Upon successful completion of your IVA any remaining debt is 'written off'. However, you may have to contribute some of any additional income you receive, such as overtime and bonuses - and if you're a homeowner you may have to make some of the equity in your home available.
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Remortgages
If you're struggling to pay off lots of individual accounts, a 'consolidation' mortgage that's big enough to pay off your original mortgage and other debts could be an option. You'll owe more to your mortgage provider but may be able to clear all your other debts, and you may be able to lower your monthly repayments. It's important to remember that making lower payments over a longer period could mean paying back more in the long term.
Think carefully before securing any debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
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Secured loans
As with a remortgage, a secured loan is tied to your home and can be a good way to access cash tied up in your property. However, think carefully about your ability to meet future repayments as you could be forced to sell your home if you are unable to keep up repayments.
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County Court Administration Order
Depending on your situation, you may qualify for an Administration Order; this is similar to a Debt Management Programme but is a legally binding agreement administered by the County Court. Once the Order has been granted, your lenders cannot apply further interest and cannot take further action. Monthly payments are made directly to the court and the Order runs for a maximum period of five years. Speak to your local County Court directly, visit www.hmcourts-service.gov.uk for more information or talk to an independent adviser to see whether this is an appropriate solution for you.
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Bankruptcy
Bankruptcy can be another way of dealing with your debts, but may only be suitable in certain circumstances. It can enable you to write off your debts and make a fresh start in as little as a year. However bankruptcy should be considered very carefully and it is important to get advice before proceeding with this option.
- When you are declared bankrupt most of your assets, including your home, could be sold to pay towards your debts.
- Although the debt you can't afford to repay will typically be written off after one year, your credit rating will be affected for six years and the overall impact could be longer. Details of your bankruptcy will be held on the Insolvency Register and may be advertised. You may also be required to make a monthly contribution from your income for up to three years.
- Bankruptcy can affect your employment; you cannot hold certain public offices and are usually unable to work in the Armed Services, Police or practice as an accountant, solicitor or act as a director of a company.
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Debt Relief Order
A Debt Relief Order is suitable for those with little or no income and few assets. In order to qualify for a Debt Relief Order, the total amount you have left to pay your unsecured lenders after normal household expenses must not exceed £50 per month. As with Bankruptcy, it is necessary to seek expert debt advice.
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