UK Debt

A Debt Management Plan is an informal agreement between you and your creditors to pay off your debts at a rate you can afford.

You can either make an arrangement with your creditors yourself or through a licenced Debt Management Company that will usually charge you a monthly fee.

In a debt management plan you can include non-priority debts which include:-

• overdrafts
• personal loans
• bank or building society loans
• money borrowed from friends or family
• credit card, store card debts or payday loans
• catalogue, home credit or in-store credit debts.

You cannot include the following debts:-

• court fines
• TV Licence
• Council Tax
• gas and electricity bills
• child support and maintenance
• Income Tax, National Insurance and VAT
• mortgage, rent and any loans secured against your home
• hire purchase agreements, if what you’re buying with them is essential.

Protected Trust Deeds

Trust Deeds are only available in Scotland and are a legally binding agreement between you and your creditors to make reduced payments over a period of 4 years. At the end of the 4 years any remaining unsecured debt is usually written off.

Benefits of a Trust Deed

• With the help of an insolvency practitioner (IP) you arrange repayments to your creditors over four years. After this any remaining debt is written off
• Once your trust deed is approved, your creditors won’t chase you for payment or add more interest and charges to your debts, and they can’t take any court action
• While you may have to sell some assets, you’re usually able to keep one essential vehicle worth less than £3,000
• Although a protected trust deed is a formal debt solution, you don't need to appear in court

Risks of a Trust Deed

• An insolvency practitioner normally takes a charge for their service out of your monthly repayment for your trust deed, so it’s important you understand what percentage this will be
• A trust deed may affect the terms of your employment; if you're concerned about this you should check your contract or speak to your HR department
• There's the risk of bankruptcy if your trust deed fails
• Your credit rating will be affected for six years, starting from the date the arrangement is agreed

Debt Arrangement Scheme

The Debt Arrangement Scheme is a debt management plan only available in Scotland. It lets you apply for a debt payment programme which helps you repay your debts by making affordable monthly payments.

Benefits of a Debt Arrangement Scheme

• A Debt Arrangement Scheme is a legally binding arrangement that lets you repay your debts at an affordable rate, while still leaving you enough money for household bills and living costs
• All interest or charges that are being applied to your debts will be frozen at the point when you apply for your plan.
• Your creditors can’t contact you or take any further legal action against you
• If your situation changes you can apply to vary your payment or apply for a payment break, although the term of the break will be added to the plan.
• Once your plan is complete, your debts will be paid in full

Risks of a DPP

• Once you’re on a payment plan your details will be put onto the DAS register. This is an online register that anyone can access
• A Debt Arrangement Scheme will appear on your credit file for six years
• If you don't keep up your payments the plan could fail, and creditors can add interest charges, or take further action against you

If you have a debt problem, one of your options for sorting it out might be bankruptcy. You can apply for bankruptcy if you can’t pay back your debts.

As well as applying for bankruptcy yourself, someone else you owe money to (a creditor) can apply to make you bankrupt, even if you don’t want them to. For a creditor to make you bankrupt, you must owe at least £5,000.

Remember, bankruptcy might not be your only option and it might not be the best one for you. One of your other options might be a debt relief order. You could be able to apply for a debt relief order if you have debts, income and property below a certain amount. This is a cheaper alternative to bankruptcy.

Advantages of going bankrupt

1. The pressure is taken off you because you don’t have to deal with your creditors

2. You're allowed to keep certain things, like household goods and a reasonable amount to live on

3. Creditors have to stop most types of court action to get their money back following a bankruptcy order the money you owe can usually be written off

Disadvantages of going bankrupt

To apply to go bankrupt you’ll need to pay a £680 fee. Other disadvantages of going bankrupt include:

1. if your income is high enough, you’ll be asked to make payments towards your debts for 3 years

2. it will be more difficult to take out credit while you're bankrupt and your credit rating will be affected for 6 years

3. if you own your home, it might have to be sold (but you may be able to apply to your local authority for re-housing)

4. some of your possessions might have to be sold, for example, your car and any luxury items you own

5. if you are, or are about to be, the right age to get your pension savings, these might be taken

6. some professions don’t let people who have been made bankrupt carry on working

7. if you own a business it might be closed down and the assets sold off

8. going bankrupt can affect your immigration status

9. your bankruptcy will be published publicly (although if you’re worried you or your family maybe the victims of violence, you can ask that your details aren’t given out)

What happens at the end of bankruptcy

Your bankruptcy will normally end after a year. The Official Receiver will tell you when it is over. Most debts that haven’t been paid will be written off although some debts like court fines and student loans can never be written off.

Even when you’re no longer bankrupt, you could have a bankruptcy restriction order made against you. This can last up to 15 years and will restrict your financial affairs. This order could be made if, for example, you do not co-operate with the Official Receiver, or you take on debts knowing that you won’t be able to pay them back.

An Individual Voluntary Arrangement (IVA) is an agreement with your creditors to pay all or part of your debts. You agree to make regular payments to an insolvency practitioner, who will divide this money between your creditors.

An IVA can give you more control of your assets than bankruptcy.

The Money Helper has information on organisations that can give you free advice about whether an IVA is right for you.

Get an Individual Voluntary Arrangement (IVA)

Your insolvency practitioner works out what you can afford to repay and how long the IVA lasts. You’ll have to give details about your financial situation, eg your assets, debts, income and creditors.

Your insolvency practitioner will contact your creditors. The IVA will start if the creditors holding 75% of your debts agree to it. It will apply to all your creditors, including any who disagreed to it.

An IVA will stop your creditors taking action against you for your debts.

Your responsibilities

Your IVA can be cancelled by the insolvency practitioner if you don’t keep up your repayments. The insolvency practitioner can make you bankrupt.

You may still be able to keep your business running, if you have one.

Public records

Your IVA will be added to the individual insolvency register. It’s removed 3 months after the IVA ends.