7 - Debt Diaries: Become Debt Free in Ten Steps - Non-Priority Debts - Repayment Options One
There are many options available to you if you are struggling to meet your debt commitments. Some of these options are more serious than others. Due to the recent economic downturn many fee-charging, commercial companies have cropped up offering all sorts of solutions to assist the public with their debts. These companies are out there to make money, and although some of the solutions might be viable it is important to seek advice from a reputable organisation to ensure the solution is right for you. For example, over the last few years there has been plenty of television advertising highlighting a ‘little known government scheme that can write off up to 80% of your debt’. This option is known as an ‘Individual Voluntary Arrangement’ (More information about those later on within this blog entry), and although it is possible under the arrangement to have a large percentage of your debts written off there could be significant implications involving property and possibly employment too. What this blog entry will do is outline some brief information about all of the debt options out there, if you are looking to take one of these schemes up I urge you to seek free, independent advice from a recognised debt charity:
National Debtline // 0808 808 4000 // www.nationaldebtline.co.uk
CCCS // 0800 138 1111 // www.cccs.co.uk
Citizens’ Advice Bureau // http://www.citizensadvice.org.uk
Some commercial firms often try and masquerade as free advice agencies, some of them have very similar names to the organisations named above. If you ever receive a cold-call from a firm stating that they are one of the above organisations it is likely they are lying. For the record, some of the fee-charging firms do a reasonable job although it is likely they will not advise you on all of your possible options – just those that they are likely to profit from. Many of these firms may offer you a ‘Debt Management Plan’(See below!), this is something that you can actually get for free, so speak to the charities.
DEBT REPAYMENT OPTIONS
1) Debt Management Plan (DMP) [England, Wales & Scotland]
A DMP is an informal arrangement where a third-party DMP provider will negotiate with your creditors on your behalf, they will also try to arrange for the interest and charges on the debts to become frozen. This option will allow you to pay an affordable amount on a monthly basis which will then be distributed on your behalf amongst the creditors. DMP’s take away a lot of the workload and are particularly worth considering if you have many creditors. They are also totally free-of-charge through one of the debt advice charities who have a very high success rate of getting affordable arrangements sorted and interest stopped. The fee-chargers also offer DMP’s, they often charge upfront set-up costs, they will also take a monthly percentage for themselves. The fee-charges often imply that the free providers work ‘on behalf’ of the creditors, and that by charging fees they offer a better service. I’ve never personally come across a creditor that prefers an individual to use a fee-charger, some creditors even refuse to freeze interest and charges. You can read more about DMPs here:
http://www.nationaldebtline.co.uk/england_wales/factsheet.php?page=29_debt_management_plan
2) Individual Voluntary Arrangement (IVA) [England & Wales]
This is a formal arrangement through the county court to pay an agreed amount off your debts over a shorter period. Any debt left at the end of the IVA is written off. IVAs can be set up in a number of different ways, either as a monthly instalment plan over a fixed term (normally five years), or a short term arrangement if you have a lump sum to put forward. Some IVAs are a mixture of both. It should be noted that if you are a homeowner there is likely to be an equity clause that will expect you to raise funds from remortgaging which will also be paid to your creditors. If you have more equity than debt it is unlikely that an IVA will go ahead as the creditors have to ratify the proposal, they will simply argue that you are not insolvent. IVA’s used to be a huge business, and although not so many are set up these days they are still a very good option if you have a significant amount of debt. They are not cheap, Insolvency Practitioners typically make a few thousand pounds from an IVA – their fees are usually built in to the monthly instalments. A word of warning: If you cannot meet the payments under an agreement they are difficult to modify, if the arrangement fails you could incur further costs; it could also cause the Insolvency Practitioner to make you bankrupt. Recently the industry got together with the Insolvency Service and compiled the ‘IVA protocol’ which is a set of rules to ensure that Insolvency Practitioners adhere to a transparent code of practice. If you chose an IVA please consider using a ‘protocol compliant’ provider. More info here:
3) Bankruptcy [England, Wales & Scotland]
Bankruptcy is a way of dealing with debts that you cannot pay. Whilst you are bankrupt any assets that you have might be used to pay off your debts. After a period of time (usually one year) all of your outstanding debts are written off and you can make a fresh start. The process is relatively expensive initially, the application costs £450 with a further £150 court fees (although you may be able to claim discount or exemption if you’re on a low income). In Scotland the current fee is £100. If you are working you may also be asked to pay a percentage of your disposable income into the bankruptcy for a three year period, this is known as an income payments arrangements. Bankruptcy is one of those options which has a huge stigma attached to it, for many it is by far their best option. It will allow a fresh start to be made and will stop the creditors from being able to chase for payment once the order has been granted. Prior to petitioning you should ensure that there are no implications with your employment. A bankrupt person is also not allowed to be a director, or involved with the running of a limited company. If you are in mortgaged accommodation it may be possible to take the bankruptcy route and keep your property, this is especially the case if you have little or no equity. Other assets, such as a motor vehicle, may be sold for the benefit of the creditors. Although the bankruptcy route is a serious step it can be the fastest and cheapest way of becoming debt free. More info here:
http://www.nationaldebtline.co.uk/england_wales/factsheet.php?page=01_bankruptcy
Or if you are in Scotland:
http://www.nationaldebtline.co.uk/scotland/factsheet.php?page=01_bankruptcy
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