Individual Voluntary Arrangements

These are formal agreements arranged through a county court to pay off debts. You pledge to pay a set sum monthly, with payments lasting between three and five years. Lump sums may also be included in the settlements. In return, creditors will agree to write off a portion of the debt. An IVA can be a solution, especially for those with reasonably high incomes or lump sums to include in a debt. They are arranged through specialist insolvency practitioners, who will negotiate with creditors and will handle the monthly payments. If you do not keep up payments, you can be made bankrupt. You can be debt free in just five years and have one affordable payment, but there are many factors to be considered. NOTE that new legislation concerning IVAs is due to come into force later this year. We'll keep you posted.
The following explanations address the most frequently asked questions.

This is the ultimate step - the last resort. It's a legal process that allows you to free yourself from overwhelming debts and make a fresh start.

The Official Receiver or a Trustee in bankruptcy will realise your assets and the funds raised will be used to pay your creditors.

After a period, usually one year, you will be discharged from bankruptcy and your debts will be written off. However, any assets which formed part of the bankruptcy estate will still be dealt with after your discharge.

There is no time limit on realizing your assets apart from your home.
The Official Receiver or a Trustee in bankruptcy has three years starting with the date of the Bankruptcy Order to deal with your home. This is your interest in a dwelling house, which at the date of the bankruptcy order was the sole or principal residence of you, your spouse or civil partner or your former spouse or civil partner. Within 3 years the trustee must realise the interest (sell it to somebody), apply for an order of repossession or sale, apply for a charging order in respect of the value of the interest or enter into an agreement with the bankrupt regarding the interest
A minimum level of £1,000 has been set, below which any application for a charging order or order for possession or sale will be dismissed.
The 3 years run from the date of the bankruptcy order or if you do not inform the Official Receiver or the Trustee of the property within three months of the bankruptcy order, the three years run from the date the Official Receiver or the Trustee becomes aware of it.

Although bankruptcy doesn't carry the same social stigma it did a few years ago, it does bring with it certain restrictions such as your bankruptcy possibly being advertised in the local press, having your landlord informed, closure of your bank account, and in certain professions - including most positions in financial services - a risk of losing your job.

The bankruptcy remains on your credit file for 6 years.

A bankruptcy order can be annulled by the court if
   (1) You have repaid your debts and bankruptcy expenses in full, or
   (2) You have provided full security to pledge to guarantee the debts, or
   (3) You should not have been made bankrupt at the time the original bankruptcy order was created, or
   (4) A creditors' meeting has approved an IVA proposal.

Even if you have been made bankrupt and have been discharged after 12 months, it is often in your interests to at least enquire whether this could be an option for you - the reasons being:
   - Even when a bankrupt has been discharged after 12 months, if a trustee has been appointed then fees continue to accumulate and this can lead to the loss of your home and any saleable assets.
   - Assets which you obtain before you become discharged will still be controlled by the trustee, who can deal with them at any time up to 3 years in the future.
   - The bankruptcy remains on your credit file for 6 years
   - Bank accounts are difficult to obtain
   - You will not be able to obtain credit for £500 or more from any person without first telling them that you are bankrupt.

To see whether you would qualify for a Bankruptcy Annulment, please fill in the enquiry form so that an expert in this field can assess whether a successful annulment is possible for you.

Debt consolidation can be done in a number of ways and depends on your current residential status.
Two of the options are: unsecured loan and secured loan. You should always seek professional advice before pursuing the secured loan option as your home may be put at risk if you do not keep up the repayments.

Debt Management Programs

These are voluntary agreements with creditors to repay debts over an extended period. They constitute an arrangement between yourself and a Debt Management company who agree to supervise and distribute your debt repayments. They take a payment each month and split it between your creditors.

It is sometimes possible to restructure repayments into a more convenient plan and you would therefore not have to sell your home as part of the agreement.
 
Interest charges can sometimes be stopped, and Debt Management companies may or may not charge a fee for their services. The Debt Advice Network would always endeavour to recommend non-fee-charging debt management companies.

Debt Management usually works best for those with at least three creditors, debts of £5,000 or more and at least £100 a month of free income to help settle the debts.

Offering a token payment
Even when there is no money left at the end of the month, creditors will nearly always expect a payment and often an amount as low as £2-£5 a month is sufficient for creditors to agree to freeze interest and charges for a period of appx. 3-6 months.

Full and Final Settlement

Full and final settlement is the process of asking creditors to accept a lump sum which is less than the full balance owed on the debt, and in return for having a lump sum payment, the creditors agree to write off the rest of the debts. They also agree in writing to change your credit reference file details to show that the balance is “satisfied”.

The lump sum payment is often determined by a combination of disposable income and the level of equity you have in your property. Or perhaps a family member is offering to settle the debt for you...

Full and Final is not guaranteed. The creditor may refuse an offer.
If they do refuse, there are a number of options available for you to proceed..

Debt Relief Orders (DRO)

Debt Relief Orders (DROs) were introduced on 6 April 2009 as a remedy for individuals whose debts total less than £15,000 and who have little or no disposable income and assets.

DROs are delivered in partnership with money advisers, mainly from the free money advice sector. Advisers act as 'intermediaries' and assist individuals in making an online application for a DRO to the Insolvency Service. DROs are therefore not available through the court system. The orders are made instead by an Official Receiver.

Once an order has been made creditors who are included in the DRO are prevented from taking any action to recover or enforce their debts against the debtor. In most cases, the debtor will be discharged from liability for those debts at the end of one year.

DROs are intended to provide a cheaper and simpler method for people to seek relief from their debts. However, they are not an easy option. Debtors will still be subject to the same restrictions as bankrupts and will only be able to access a DRO once every six years. They will also affect the debtor's credit rating.

Eligibility for a DRO
You must satisfy strict qualifying conditions in order to be eligible for a DRO, including full disclosure of income and expenditure. Your liabilities must not exceed £15,000, your gross assets must be less than £300 and you must have a disposable income of less than £50 per month. Applicants will be allowed to have a vehicle with a value of less than £1,000. The Official Receiver will carry out checks to verify the information provided.

Application and Further information
The approval of an application is done by a Competent Authority who has the power to approve or decline applications. Applications are sent to the Competent Authority by intermediaries under the scheme.

Further information on DROs, including FAQs is available on the Insolvency Service website. Or phone the helpline 0845 602 9848 to obtain a list of competent authorities.

Payment
The fee for a DRO is £90.00. This covers the cost of the Official Receiver's work in administering the application and making the order. The fee must be received by the Insolvency Service before the DRO application can be finally submitted.

Each time you apply for credit, whether it be a credit card, small loan or mortgage, the company in question will do a credit search on you. The result will show them whether you are a good risk, moderate risk or bad risk. Only you, and with your permission, suppliers of credit and the agencies acting for them, will have access to this information.
Each month your creditors send information about your payment history for that month to credit agencies, and this information builds a profile of your creditworthiness.
The main UK agencies are:
     1. Experion   
     2. Equifax   
     3. Callcredit
All can be requested on-line, and the report will be either instantly accessible or will be sent to your home address, depending on which agency you use. However, not all creditors send information to all three agencies. They may, for example, send it to Experion and not to Equifax. The effect of this from your point of view is that a report from one agency may not mirror exactly a report from another agency.
Therefore, in order to see exactly what you owe, to whom, and a complete payment history, it is advisable to obtain a report from all three agencies.
You can obtain a report which will contain information that is held by all three agencies from www.CHECHMYFILE.com.
This will provide you with a comprehensive list of your creditors, the original start dates of loans, and the outstanding balances.
In order to protect your identity and to ensure that the person requesting the report is actually you, Checkmyfile will send you a PIN addressed to you at your home address within two working days. Once received, you will be able to access your credit file.
Needless to say, they do make a small charge for this service, but in relation to what you ultimately want to achieve,  the cost is minimal and the money well spent.
Our advisors will need this information in order to negotiate with your creditors, and it will save you valuable time if you have the information readily to hand.