If you are over-burdened with unsecured debt, you need to take urgent action to realign your income and expenditure. There are ways to get out of debt without declaring bankruptcy, but they involve making an affordable monthly payment to your creditors. However, you will be able to eliminate debt and start a life which is completely free from credit obligations.
Debt management plan
What is a debt management programme?
It is a voluntary agreement with creditors to clear debts at a rate which is affordable to you, not what is specified in the credit agreement. It must be agreed to by all parties and can be cancelled by the debtor or creditor at any time. Freeze on debt interest and charges
Although creditors are not obligated to do so, most will agree to place a freeze on further interest and charges. Given that you are paying a reduced amount each month, the process of getting out of debt can be expedited. Managing debt repayments
Unlike an IVA, you will not be eliminating any of your debt. You may extend the life of your debt, but you are far less likely to receive calls from creditors. Your intermediary will handle all creditor contact on your behalf in exchange for a 15% fee. When is a debt management plan appropriate?
Debt programmes tend to be most effective when dealing with small sums of money which are owed to multiple creditors. You will make a single, affordable repayment to a third-party account and the money will be distributed to creditors on a pro rata basis.
Individual Voluntary Arrangement (IVA)
What is an IVA?
An Individual Voluntary Arrangement is a legally binding agreement with creditors that has the potential to eliminate up to 75% of your unsecured debt. Once agreed, it is illegal for creditors to contact you for repayment. Creditor approval
An IVA will need to be agreed to by three-quarters of your creditors in terms of value. Once agreed, you can get out of debt without bankruptcy. What happens if I fall behind?
If you fall behind with your repayments, you are technically in default of the agreement. However, it is possible to hold a meeting of creditors to see if they are willing to agree to a variation. When will I be free from debt?
You will make a fixed repayment for 60 months and any remaining debt is written off. Getting credit in the future
A couple of months after the final repayment has been made, you will be sent a certificate of discharge by your Insolvency practitioner (IP). You are advised to send this to credit reference agencies so that they can update their records.