Debt Management Plan

A Debt Management Plan is an informal repayment agreement between you and your creditors to pay your debts.

Debt management plans are an alternative debt solution to formal arrangements, such as an Individual Voluntary Arrangement or Bankruptcy and are available to residents in the United Kingdom.

Debt management plans are normally used under these circumstances:

• You cannot maintain the minimum contractual repayments required by your creditors.
• You struggle to repay the debt but can make repayments to clear the debts within a reasonable timescale.
• You can organise a payment plan with your creditors, use a licensed Debt Management Company (fees are charged) or via the free sector.
• Payments are made regularly to the company.
• The company divides the money between all your creditors.

IVA

An Individual Voluntary Arrangement (IVA) allows you to combine all your repayments into one affordable payment. You make this payment over an agreed period, after which any remaining debt can be written off. The term is usually 60 months (Five years) for tenants and 72 months (Six years) for homeowners. An IVA is typically set up and administered by a qualified Insolvency Practitioner, known as an IP.

• An IVA (Individual Voluntary Arrangement) is a legally binding agreement between you and your creditors to pay back your debts over a period of time.
• You agree to make regular payments to an insolvency practitioner, who will divide this money between your creditors.
• The fees charged are taken from the affordable monthly payment you make over the agreed term of the IVA.
• An IVA can give you more control of your assets than bankruptcy.

Administration Order

An administration order is a repayment plan arranged by the County Court and are are only available in England, Wales and Northern Ireland. If you live in Scotland there are other options available to help you deal with your debts.

• An administration order is legally binding on your creditors and gives you protection from them.
• The creditors included in the order can’t contact you for payment or add any more interest or charges to your debts once the administration order has been approved.

To apply for an administration order you must have:

• Less than £5,000 debt in total.
• Received at least one court judgment.

Debt Relief Order

A Debt Relief Order (DRO) is a way of dealing with your debts if you can’t afford to pay them. It means you don’t have to pay certain debts for a specified period (usually 12 months). At the end of the DRO period, the debts included in it will be written off (‘discharged’), and you won’t have to pay them. A DRO is a formal debt solution designed for people with little or no assets and low income. If you don’t own your own home & have little spare income and debts that are less than £30,000 a Debt Relief Order (DRO) could be a way to deal with your debts.

To be eligible for a DRO, you must meet these criteria:

• you owe £30,000 or less, £20,000 or less in Northern Ireland.
• you have less than £75 to spend each month, after paying tax, national insurance and normal household expenses.
• you’ve lived or worked in England or Wales in the last 3 years.
• your assets aren’t worth more than £2,000 in total, including vehicles.
• you’ve not had a DRO in the last 6 years.

You won’t be eligible if you are involved in bankruptcy proceedings or any other formal insolvency procedure. However, if one of your creditors has asked a court to make you bankrupt, you may ask the creditor for permission to apply for a DRO instead.

Bankruptcy

There are various options available for people looking to break free of debt; one is bankruptcy. Bankruptcy is a form of insolvency that writes off debts if you struggle to repay them. It’s typically considered a last resort as a suitable legal process if you have little hope of repaying your debts within a reasonable timescale. Nearly all your unsecured debts are written off when you go bankrupt. In some cases, your creditors can choose to make you bankrupt. However, bankruptcy has severe implications and shouldn’t be considered lightly.

To declare bankruptcy in the England and Wales, an individual must make an application to the court and pay a fee. The court will then appoint an official receiver, who will take control of the individual’s assets, sell them to repay creditors, and distribute any remaining funds to the creditors.

Being declared bankrupt can have serious consequences, including the loss of assets, a damaged credit rating, and restrictions on obtaining credit or certain types of employment. However, it may also provide a fresh start for individuals struggling with debt and allow them to move forward with their financial life.

If you declare bankruptcy in the UK, personal assets such as your car and any properties you own will usually be sold to repay your outstanding debts.

Breathing Space

Breathing Space is a new debt option that gives you temporary protection from the creditors you owe money to if you’re struggling with debts.

This includes:

• Freezing most interest, fees and charges on debts.
• Pausing most enforcement action and contact from creditors.

There are two types of Breathing Space:

• Standard Breathing Space – which you apply for through debt advice, and which lasts for up to 60 days, with a review between days 25 and 35.
• Mental Health Crisis Breathing Space – which is specifically for people in mental health crisis treatment and can only be applied for with an Approved Mental Health Professional (AMPH). It lasts for the duration of your treatment, plus 30 days.

Consolidation Loans

Debt consolidation combines debts, including loans, credit cards, store cards, catalogues, overdrafts, or any other outstanding bills, into one single loan. The aim is to simplify your repayments and reduce the anxiety of managing debt. Banks, credit unions, and instalment loan lenders may offer debt consolidation loans. These loans convert many of your debts into one loan payment, simplifying how many payments you have to make. These offers also might be for lower interest rates than what you’re currently paying.

However, consolidating existing credit commitments should not be considered a cure-all. If appropriately used, restructuring debts through consolidation can help you get debt free faster by reducing the interest burden of existing borrowings and bringing repayments within budget. On the other hand, if there are more serious underlying problems, it may only grant temporary relief before the creditors become unmanageable again.