Debt Guide

CRITERIA INCLUDING TYPES OF DEBTS

You have more than £5,000 of unsecured debt.

That you have 2 or more different creditors.

After paying all your essential living expenditure you have a surplus income of at least £70.

Acceptance of an IV is decided by your creditors. For an IVA to be accepted, more than 75% of the voting creditors by debt value must approve, therefore any single creditors with 25% or more of the overall debt level must not reject the IVA for it to proceed.

Arrears on household bills such as rent (but NOT mortgage arrears), gas, electricity, telephone and council tax can be included in your IVA, as well as consumer debts such as an overdraft, credit card or loans. Outstanding VAT, Inland Revenue debts, hire purchase or conditional sale agreements, items brought on finance and loans from friends and family can also be included in your IVA, but if you wish to keep goods which are subject to HP agreements, you must continue to pay the monthly amounts due.

You are responsible for maintaining payments on your essential bills, including rent or mortgage and Council Tax.

Court fines, student loans, mortgage arrears or money owed under family court proceedings cannot be included in the IVA and you are responsible for maintaining payments. These payments will be considered when calculating your disposable income.

COST

No upfront fees are charged.

There are Nominee’s fees and Supervisor’s fees. These fees are deducted from your agreed monthly contribution.

If your IVA failed, the Nominee’s fees and Supervisor’s fees would be included as a debt and your creditors may back date any interest or charges accruing on your debts.

ADVANTAGES

An IVA is a statutory contract, therefore providing legislative protection from creditors and any legal action they may otherwise pursue.

An IVA is a way to avoid bankruptcy proceedings and property repossession.

An IVA consists of one affordable monthly contribution.

All interest and charges will be frozen upon acceptance.

Creditor contact is forbidden (other than annual statements).

Debts included in your IVA could be cleared in 5 years.

The time frame is set at the outset, this will only be subject to change should your circumstances improve or worsen.

No upfront fees are charged and the Nominee’s and Supvisor’s fees are deducted from your agreed monthly contribution.

Homeowners will usually be able to keep their homes, provided they maintain the

mortgage payments and other loans secured against their property.

Once you have made your agreed final contribution into the IVA any remaining debt is written off.

DISADVANTAGES AND RISKS

Acceptance of the IVA lies with the creditors. Should this be rejected, alternative solutions will need to be re-investigated with qualified debt advisors.

Your credit rating will be adversely affected throughout your IVA and usually, for an additional year after completion.

There are restrictions on the expenditure of a person who enters into an IVA.

Entering into an IVA will be entered on the Individual Insolvency Register.

At the start of an IVA an assessment of your income and expenditure items are taken and thereafter reviewed annually. Creditors will require evidence should certain items be considered excessive and if suitable proof cannot be supplied, you will need to reduce your spending in those areas. Average increases in household living expenses will be taken into account during this review.

Homeowners entering into an IVA should be aware that they will be expected to introduce 85% of available equity six months prior to the end of the arrangement. Due to credit scoring it may be that the terms of such an arrangement are less favourable and re-mortgaging may result in a higher interest rate. It could also mean that releasing equity is restricted completely and, in protocol compliant cases, the IVA can be extended by a further 12 months.

Any windfalls over and above £500 are to be introduced into the IVA for the benefit of the creditors; any remainder after the debt has been cleared in full will be paid back to you.

To obtain credit over and above £500 you must first get written permission from your insolvency practitioner, unless the credit is for public utilities such as water, gas or electricity.

You may be asked to downgrade or sell any high value assets.

Any debts that can’t be included in the IVA, will be your responsibility to pay, for example court fines, student loans or money owed under family court proceedings.

Only unsecured debts included within the IVA may be discharged at the end of the period and unsecured debts not included remain outstanding.

Creditors have the right to challenge the IVA within 28 days of the approval date on any material irregularity or unfair prejudice.

Should the IVA fail, creditors may back date interest on your debts or may request your Supervisor petition for your bankruptcy.

Entering into an IVA is a statutory contract which would require you to obey the terms of the IVA. Failure to do so could mean that the Supervisor may petition for your bankruptcy or terminate the IVA (which would leave the creditors free to pursue the debts).

The Insolvency Supervisor must fully investigate for any potential mis-sold PPI. There are no agreed time frames on this subject meaning the arrangement could be extended past the proposed IVA period.

DEBT MANAGEMENT PLAN

A Debt Management Plan (DMP) is an informal debt restructuring solution for unsecured debt. DMPs are provided by debt management companies and charitable organisations who could negotiate with your creditors to try to get them to accept the lower repayments and freeze any further interest that might otherwise be added to your current debt.

CRITERIA INCLUDING TYPES OF DEBTS

You have unsecured debts that you can’t afford to repay.

You have one or more creditors.

You have a surplus income every month.

Arrears on household bills such as rent, gas, electricity, telephone can be included in your DMP, as well as consumer debts such as an overdraft, credit card or loans.

Hire purchase or conditional sale agreements and items bought on finance may be included in  your DMP depending on the amount you have paid towards the items and the terms of the agreement.

You are responsible for maintaining payments on your essential bills.

Certain types of debt will not be included in the DMP. You will be responsible for paying taxes, fines, child support payments and debt which could result in loss of access to essential goods or services or repossession of, or eviction from your home. The payments towards these debts will be considered when calculating your disposable income.

COST

There is an option to pay a fee for this service with a debt management company or you can seek advice and/or assistance from the free sector, such as a charitable organisation.

Commercial Debt Management Companies charge a fee for their service. They should be taking no more than 50% of your payment for the first 6 months as a fee to set up the plan, and no more than 50% of your payment to administer the service for you from month 7 onwards.

There are charitable organisations that administer DMP’s free of charge. The Money Advice Service provides details of organisations that provide free debt advice and services. For more informationhttps://www.moneyadviceservice.org.uk/en/tools/debt-advice-locator.

ADVANTAGES

DMP is an informal arrangement that avoids the need for formal insolvency procedures such as an IVA or bankruptcy.

You make one monthly payment.

By reaching agreement with your creditors, a DMP may suspend actions against you such as County Court Judgements.

Creditors will, in many cases, freeze interest and charges.

Your monthly debt repayments will be reduced to make them affordable.

The service can be provided free of charge.

You can cancel your DMP at any point.

DISADVANTAGES AND RISKS

The arrangements are informal and are not legally binding so creditors could, if they choose, add interest and charges, or pursue other recovery action such as court action. They could also change their mind at any point.

The time it takes to set up such a plan could result in accounts falling into arrears or increasing in arrears.

Your credit rating may be harmed. A DMP means you are making a reduced payment to your creditors and although this has been agreed to by your creditors it will still be noted on your credit file. Your credit file will be affected for a further 6 years after your last DMP payment.

Someone entering into a debt management plan will be expected to live within a controlled budget.

While such arrangements reduce your monthly repayments to make them affordable, it usually means you will pay more in total over a much longer period.

Interest or charges could be added to your debt, which means the total debt to repay will be higher, and depending on your level of payment, it could make the duration of the plan longer.

Unless your level of debt is less serious you could end up in debt for a very long time. In the worst case you may find you have no real prospect of getting out of debt and becoming debt free.

You must maintain payments to your essential bills. You are responsible for paying taxes, fines, child support payments and debt which could result in loss of access to essential goods or services or repossession of, or eviction from your home.

Creditors may take further action to recover the debt which may involve additional costs or charges. If a creditor has already commenced recovery or legal action there is no guarantee that it will be suspended or withdrawn.

If you are a homeowner, creditors may seek a charging order to secure their debt against your property.

Money Advice Service can put you in contact with charitable organisations who will administer your DMP free of charge, however there are commercial organisations who will charge a fee. The fee will result in you repaying your debt for a longer period of time.

DEBT RELIEF ORDER

A Debt Relief Order (DRO) is a formal insolvency process that can help you deal with your debts if you owe less than £20,000, don’t own your home and have little spare income. DRO’s are an alternative debt solution to bankruptcy and usually last one year. Once you are in a DRO creditors are unable to recover their money without permission from the courts. Once discharged from your DRO, all of the debts listed in your DRO will be cleared.

CRITERIA INCLUDING TYPES OF DEBTS

You are unable to pay the debts you owe.

You have £50 or less spare income each month (after normal household expenses).

You must owe less than £20,000 if you live in England and Wales or less than £15,000 in Northern Ireland.

You must not be a homeowner.

You have less than £1,000 worth of assets (this excludes a car which you also own, as long as its value is less than £1,000).

You have not had a DRO in the past six years and are not in another formal insolvency procedure.

You have lived or worked in England, Wales or Northern Ireland for the past three years.

Arrears on household bills such as rent, gas, electricity, telephone and council tax can be included, as well as consumer debts such as an overdraft, credit card or loan. Hire purchase or conditional sale agreements, items brought on finance and loans from friends and family can also be included in your DRO.

Criminal fines, student loans, child maintenance service arrears, TV licence arrears, Social Funds loans or damages for personal injury ordered by a court cannot be included in a DRO.

COST

The cost of a DRO is £90.

Intermediaries are not allowed to charge you a fee for submitting your DRO application to the Insolvency Services

ADVANTAGES

You could clear your debt in a year.

The cost of a DRO is much cheaper than bankruptcy.