Sometimes there isn’t one perfect debt solution, but instead there may be two or three options which you can consider before making your choice. This happens if you qualify for an IVA as you may decide you want to enter bankruptcy or a debt management plan instead. Each debt solution works differently and has different pros and cons to resolve debt and money worries. If you need IVA debt advice, bankruptcy or debt management help you can always get this from Debt Support Trust.
We’ll cover off a few of the differences as well as the pros and cons of each solution. If you want specific tailored money advice from Debt Support Trust you can call 0800 085 0226 and our charity advisors will be glad to help.
Our debt analyser enquiry form can help you understand which debt solution is best for you. You can complete the debt analyser below.
IVA Vs Other Debt Solutions
The indivudual Voluntary Arrangement debt solution allows you to put a proposal to your creditors to repay what you can afford over a 5 year period. Any remaining debt, along with interest and charges, will be written off at the end of the plan. For some people this may be the best option to help them clear their debt and retain their property.
However, there are other solutions too. Depending on the level of your equity in any properties you have you could consider bankruptcy. The bankruptcy debt plan is a one year debt solution – so 4 years less than the IVA. If you can afford to contribute to your bankruptcy each month then you would be asked to do so. There are two routes into bankruptcy – going to court or completing a DRO application.
In the debt management plan you would repay all of the debt, whereas in the bankruptcy you only pay what you can afford for 3 years. If your debt management plan will last 10 – 15 years or more we would consider the IVA or bankruptcy a better option.
So, what happens to your house in a bankruptcy, debt management plan and IVA? Well, it all depends on how much equity is present and how much can be released via remortgage or sale. If you have enough equity in your house then you would be asked to sell your house in bankruptcy to give the money to your creditors. Alternatively, a family or friend could offer the equity in a lump sum payment so you can keep your house.
Your property is not part of the debt management plan so you won’t have to consider the equity in your property in a debt management solution. In an IVA the equity is considered at the end of the plan. You will be asked to consider how much equity you have available and potentially try to remortgage. If you can’t remortgage then you will be in a 6 year IVA.
Debt Solutions to Consider
Debt Management: An informal debt solution where you repay all of the money you borrowed, but over a longer than agreed period of time. If your monthly contractual payments to debts is £400 but you can only afford £200 then you can enter a debt management plan to repay the debt. In a debt management plan your creditors will be asked to freeze interest and charges so you can repay the debt quicker. There is no guarantee interest and charges will be frozen.
IVA: The IVA is typically a 5 year debt solution which protects you from your creditors. You pay what you can reasonably afford (e.g. £200 per month). At the end of the debt solution any debt which is not repaid will be written off. Interest and charges is guaranteed to be frozen and written off at the end of the IVA. If you inherit money or win the lottery then you must pay back all of the outstanding debt. If you have a house then you may have to remortgage, if you can.
Bankruptcy: A one year solution, bankruptcy is usually the shortest route to resolve debts. The bankruptcy route could see you make monthly repayments to the debt for three years. This would be your disposable income, determined by your Official Receiver. If you have a house or other asset, where there is equity, then you would have to sell this to repay your creditors.
All debt solutions will affect your credit file and leave a default on your credit report lasting 6 years from the date the default was added.
Which Debt Solution To Enter?
There are a variety of different debt solutions and each debt plan operates slightly differently. The right one for you will depend on your income, expenditure, assets and level of debt. Before entering any debt solution ensure you seek debt help from a charity. You can call Debt Support Trust on 0800 085 0226 or complete a debt analyser below for online debt support.