Solutions we can help with

Debt Consolidation

Consolidating debt usually involves taking out new credit in the form of a debt consolidation loan to pay off existing credit. Extra costs can be involved, and to understand the risks it is important to get impartial advice before going ahead with this.

Most people do this to reduce:

The interest rate on their debt
Their monthly payment amounts
The number of companies they owe money to

Debt consolidation loans are not right for everyone. It is important to check all the options available to be sure you are making the right choice. While consolidating debt often sounds like a promising solution, it could make your situation worse. You may also pay back more interest over the term. It may also not be an option at all if you have a poor credit history.

Benefits

Considerations

You may pay back more than you currently owe, including interest
You may not be able to raise enough to consolidate all your debts
If your credit rating is poor, it is unlikely you will able to obtain a consolidation loan
Failure to maintain your payments may result in creditors taking further action
If home owner your property may be at risk if you cannot keep up with the repayments

Bankruptcy

Bankruptcy is a debt solution and a form of insolvency. It is a legal procedure mainly suited to people whose circumstances are unlikely to change, and who have little hope of paying off their debts within a reasonable time.

Bankruptcy works differently depending on where you live in the UK. If you live in England, Wales or Northern Ireland the information below outlines the bankruptcy process.

Bankruptcy is a form of insolvency, and normally only suitable if you cannot pay back your debts in a reasonable time. Any assets you own, such as your house, will normally be sold to pay off your debts. This means that if your assets are worth more than your debts, or if all of your regular payments are up to date and you can afford to keep paying them, bankruptcy is unlikely to be the best option for you.

When you make yourself bankrupt, almost all of your unsecured debts are written off, allowing you to make a fresh start. But personal bankruptcy rules mean you will face certain restrictions.

Bankruptcy fees vary depending on where you live in the UK.

In England and Wales, you pay a total of £680, made up of a £130 fee to the adjudicator and £550 to the official receiver.

In Northern Ireland the total cost is £676 made up of a £151 court fee and £525 bankruptcy deposit. Solicitor’s fees are around £7.

Advantages

Debts are written off, with certain exceptions explained below
Creditors can't take further action unless the debts are secured on your home or other property
It allows you to make a fresh start after 12 months.
You may be able to avoid having to sell your home if your spouse, partner or a relative can buy your share of its value after any debts secured on it have been paid
On completion of the Bankruptcy, the balance of what you owe your creditors is written off

Disadvantages

Your bankruptcy is entered on a public register and is advertised
Your employment may be affected
You will remain liable to pay certain debts
Any business you have will almost certainly be closed down
If you apply to the court for your own bankruptcy, you will have to pay a court fee and deposit totalling £680

Debt Relief order

A debt relief order (DRO) can help you to write off debt that you are unable to repay in a reasonable amount of time. Debt relief orders (DROs) are not available if you live in Scotland.

DROs are usually suited to people with a fairly low amount of debt and who have few assets.

If you have less than £75 in income left over after paying for all your household bills and living costs, and you meet all the other criteria, you can apply for a debt relief order.

12 months after your DRO is approved, all the debts included in it are written off. Your details will continue to be recorded on the public insolvency register for a further three months, and in your credit file for six years from the date the DRO was approved.

Your debt relief order is recorded on your credit file for six years from the date your DRO has been approved.

Your creditors are still allowed to contact you if you have a DRO, but they cannot demand payment or start court action against you.

Advantages

Your debts will be written off at the end of the DRO. There are a few exceptions, as explained opposite
None of the creditors listed in the DRO application can take further action against you without the court’s permission
It allows you to make a fresh start after 1 year
The fee (£90) is affordable and can be paid in instalments but the fee must be paid before the application can be made
You will keep your assets and a vehicle as detailed above.
The approved intermediary ensures that you are given appropriate advice and that you fit the criteria for a DRO

Disadvantages

Your DRO is entered on a public register
You can’t have a DRO if you have an existing bankruptcy order, an IVA, are subject to bankruptcy restrictions, or you have had a DRO in the last 6 years
You won’t be able to have a DRO if you own a house, even if it has no equity (value)
You will remain liable to pay certain debts – in particular: student loans, fines, debts arising from family proceedings, budgeting loans and crisis loans owed to the Social Fund
Your employment may be affected

Debt Management Plan

A debt management plan (DMP) is a debt solution that can be used to help you pay back your debts at an affordable rate. It is normally suitable if you are struggling to meet the original repayment amount you have agreed with their creditors.

If you are on a DMP you make reduced monthly payments towards your debts. This means a DMP is suitable if you are struggling to keep up with your normal debt payments, but who still have money available to you after all essential living expenses are paid.

A debt management plan (DMP) is usually arranged on your behalf by a third-party provider, for example a debt charity or debt management company. This means you will make a single monthly payment to the DMP provider and they will contact all of your creditors and send each of them a share of your payment every month.

Typically, the debt management company would charge a monthly management fee for managing the arrangement for you, the fee would be factored in to your monthly repayment.

Sometimes people self-manage DMPs, but this depends how confident you are in dealing with your creditors.

DMPs are available across the UK. So regardless of where you live in the UK, if you are struggling to keep up with payments to your debts, a DMP could help you to get your financial situation back on track.

Advantages

A DMP is an informal solution, allowing flexibility if your situation changes unlike most insolvency solutions
The debt management company will help you prepare your plan, including agreeing the level of your household and personal spending based on guidelines, which can then be used to put your case to the creditors
The debt management company will negotiate with creditors on your behalf, so offers are more likely to be accepted and interest frozen than if you try to do this yourself
You may be able to vary your payments if your circumstances change

Disadvantages

By making reduced payments to your debts, it will take longer to pay your debts in full
The debt management company can’t force creditors to accept your proposal or freeze interest. A plan is not binding on creditors who refuse to take part in it, but they can’t refuse to accept any payments made to them
Typically, a management fee is charged by the debt management plan company. This is factored in to your monthly payment.
Creditors could still take enforcement action against you, for example by getting a county court judgment and then an order, which creates a charge on your home*, even if you are keeping up your payments under the plan, unless they agree not to do so
You may not be able to make reduced offers if your circumstances worsen and you can no longer afford your agreed monthly payments

Individual Voluntary Arrangement (IVA)

An individual voluntary arrangement (IVA) is a formal agreement between you and your creditors that can help you repay your debts at an affordable amount.

IVAs are legally binding agreements that can help you deal with your debts. You can only get an IVA with the help of an insolvency practitioner (IP).

With an IVA you put forward an offer of payments on your debts to your creditors. This will be based on what you can afford. If you have an IVA, your payments towards your debts can be made through either a one-off payment, known as a lump sum IVA, or a 60 or 72 month repayment plan.

IVAs are not available if you live in Scotland. In Scotland, a similar solution is a protected trust deed, however it’s important to note that it has different benefits, risks and fees associated with it.

Not everyone can qualify for an individual voluntary arrangement. They are generally suitable for people with a sustainable, regular source of income. People with a lump sum to pay towards their debts may also qualify for an IVA.

Not all debts can be included in an IVA. However, most types of debt can be included, such as credit cards, personal loans, overdrafts, gas and electric arrears and payday loans.

Secured debts, such as mortgages or secured loans, and some other debts (including student loans, fines and child support) will still have to be paid separately, outside of the IVA.

An IVA should be considered with care because of the possible consequences for your personal, professional and financial life.

Advantages

Once approved, an IVA is binding on all of the creditors included in it, whether they agreed to it or not
Under an IVA, creditors cannot apply any interest/charges to the debts included, take legal action, or contact you about your debts
The IVA provides a formal alternative to bankruptcy, meaning you don’t need to sell significant assets like your home
You will make one affordable payment into the IVA each month

Disadvantages

The creditors will vote on whether to accept your IVA proposals, and a majority of the lenders (by debt level) will have to agree for it to be approved
An IVA will have a negative impact on your credit rating for at least six years, and you will be listed on a public insolvency register for the duration of the IVA
If there is reasonable equity in your property, you may be required to release this into your IVA
You will need to stick to an agreed budget for the duration of the IVA, with restrictions on your expenditure

Informal arrangement

Benefits

Considerations

To be fully effective you need all your creditors to agree to the arrangement
Creditors are not legally bound to the arrangement
Your credit rating may be damaged as you are not maintaining the contractual repayment
Interest and charges may not be frozen

Trust Deed (Scotland)

A trust deed is a formal agreement between you and your creditors where you make reduced payments to your debts.A trust deed usually lasts for four years. Once it is completed, your unsecured debts will normally be written off.

Trust deeds are not available if you live in England, Wales or Northern Ireland. In these countries, an individual voluntary arrangement (IVA) is a similar solution, but it is important to note that it has different benefits, risks and fees associated with it.

A trust deed is a voluntary agreement with your creditors to repay part of what you owe them.A trust deed transfers your rights to the things you own to a trustee who may sell them to pay your creditors part of what is owed to them. A trust deed will normally include a contribution out of your income, usually for four years.

Your trustee must be a qualified insolvency practitioner (IP). Insolvency practitioners are regulated by law and must be members of an approved governing body.

An ordinary trust deed is not binding on creditors unless they agree to its terms.

If a trust deed is the right debt solution for your situation it is important to know that there are certain benefits and risks associated with it. Things you will need to consider include:

Advantages

Once approved, a Trust Deed is binding on all of the creditors included in it, whether they agreed to it or not
Under a Trust Deed, creditors cannot apply any interest/charges to the debts included, take legal action, or contact you about your debts
The TD provides a formal alternative to bankruptcy, meaning you don’t need to sell significant assets like your home

Disadvantages

The creditors will vote on whether to accept your Trust Deed proposals, and a majority of the lenders (by debt level) will have to agree for it to be approved
A Trust Deed will have a negative impact on your credit rating for at least six years, and the TD will be listed on a public insolvency register for the duration
If there is reasonable equity in your property, you may be required to release this into your TD

Sequestration (Scotland)

Bankruptcy, sometimes called ‘sequestration’, is a form of insolvency allowing you to write off debt that would otherwise take many years to clear. It may be recommended for you if you are unable to repay your debts in a reasonable time.

The rules for bankruptcy in Scotland are different from other UK countries. Bankruptcy in England, Wales or Northern Ireland has different benefits, risks and fees associated with it.

Bankruptcy may also involve selling assets you own, such as your house or car. Once bankruptcy is completed, your unsecured debts are usually written off and you should not receive any further contact from creditors.

If your assets are worth more than your debts, or if you can pay back your debts in a reasonable time, bankruptcy might not be your best option.

Bankruptcy may also make it more difficult to get credit as it will remain on your credit file for six years.

Debt Arrangement Scheme (Scotland)

The Debt Arrangement Scheme (DAS) is a statutory debt management tool overseen by the Scottish Government. It lets you apply for a debt payment programme (DPP) to repay your debts over a reasonable period by making affordable monthly payments.

A DPP will work for you if:

You live in Scotland
You have money left over once you have paid your household bills
You owe money to one or more organisation or person

Each month you make an affordable payment to your DPP. This payment is then shared between the different creditors that you owe money to. A percentage of your monthly payment is deducted to cover the running costs. The company or charity arranging your plan will generally retain 20% and 2% is sent to the Accountant in Bankruptcy who acts as the DAS administrator and oversees the Scheme on behalf of the Scottish Government.

Your DPP can be for any amount of money as long as you repay what you owe in a reasonable amount of time. If you’re not able to repay in a reasonable amount of time there may be other debt solutions open to you, like sequestration, the Scottish term for bankruptcy.