Exiting an Individual Voluntary Arrangement (IVA) is a significant milestone in your journey to financial freedom. After successfully completing your IVA, you’re […]
Debt Solutions
Introduction
- Brief overview of the challenges of debt and the importance of finding the right solution.
- Emphasize that each solution is tailored to individual circumstances.
- Encourage users to explore the options and seek advice if unsure.
Debt Management Plans (DMPs)
What is a DMP?
- Explanation of a Debt Management Plan: an informal agreement with creditors to pay back debts at an affordable rate.
Who is it suitable for?
- For those struggling to meet monthly payments but can pay something towards their debts.
- Ideal for unsecured debts like credit cards and personal loans.
Key Features
- Affordable monthly payments.
- No legal binding, but creditors are often willing to cooperate.
- Can reduce or freeze interest and charges in some cases.
Pros and Cons
- Pros: Flexible, no court involvement, tailored to your income.
- Cons: Credit rating may be affected, not all creditors are obliged to agree.
How to Set Up a DMP
- Outline the steps, including contacting a provider or charity.
- Mention fees, if any, or free options like StepChange.
Individual Voluntary Arrangements (IVAs)
What is an IVA?
- Explanation: A legally binding agreement to pay a portion of your debt over 5-6 years, after which remaining debts are written off.
Who is it suitable for?
- For individuals with significant debt who cannot afford full repayments but can commit to regular payments.
- Must have a stable income.
Key Features
- Covers unsecured debts such as credit cards, loans, and HMRC arrears.
- Requires approval from 75% of creditors (by debt value).
- Legal protection from creditor actions.
Pros and Cons
- Pros: Stops creditor harassment, debt written off after completion, interest frozen.
- Cons: May affect your home if equity release is required, remains on your credit file for six years.
How to Apply for an IVA
- Detail the role of an Insolvency Practitioner (IP).
- Highlight the importance of professional advice before proceeding.
Bankruptcy
What is Bankruptcy?
- Explanation: A legal process where debts are wiped out if you’re unable to pay them, involving asset liquidation.
Who is it suitable for?
- For those with overwhelming debt and no realistic way to repay.
- A viable option if you have few assets to lose.
Key Features
- Immediate relief from creditor actions.
- Typically lasts 12 months, but financial consequences can persist.
- Requires payment of a bankruptcy fee (£680 in England and Wales).
Pros and Cons
- Pros: Clears most debts, legal protection from creditors.
- Cons: Loss of assets, severe impact on credit rating, restrictions on certain professions.
The Bankruptcy Process
- Application process through the government’s Insolvency Service.
- Outline what happens during and after bankruptcy.
Debt Relief Orders
(DROs)
What is a DRO?
- A simpler, cheaper alternative to bankruptcy for those with low income, minimal assets, and debts under £30,000 (in England and Wales)
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