Bankruptcy isn’t the only debt solution that’s available. If you’re struggling with problem debts, it’s important to be aware of all of the different options that could help you. Here are the alternative solutions available – speak to a debt advisor as they’ll be able to advise which is the most suitable for your situation.
Debt Relief Order
If you aren’t able to repay your unsecured debts in a reasonable amount of time and you meet the strict criteria of a Debt Relief Order (DRO), which includes being a resident of England, Wales or Northern Ireland, it could provide a lower cost route into insolvency than regular bankruptcy. You’ll also need to have a limited level of income after paying for your essential living costs and few assets.
If your DRO is agreed, the payments you make towards the unsecured debts included in it will be suspended for a year and if your circumstances don’t get better during that period, the outstanding debts will be written off.
As a DRO is an insolvency solution, it does come with some consequences. As an example, it will be recorded on your credit file for six years from when the DRO is approved, which will make it harder for you to take out credit.
Find our more about Debt Relief Order here.
Debt Management Plan
If you can’t currently afford your monthly payments to your unsecured debts but you could afford to pay a lower amount towards them each month, a Debt Management Plan could help.
A Debt Management Plan allows you to continue to make payments towards your debts, whilst ensuring you’ve got enough money left over to pay for essential living costs, including your rent, mortgage, food, utility bills and travel costs.
You can speak to your lenders directly or choose a Debt Management Plan provider to negotiate a new lower monthly payment with your lenders – this payment will be affordable and sustainable for you. You or your provider can also ask your lenders to freeze charges and interest on your accounts, and whilst they do not have to agree to do this, if they can see that you are genuinely struggling with your finances, they often will.
There are consequences to a Debt Management Plan, for example, reducing your monthly payments on your original debts will mean that your credit rating will be affected, making it harder for you to obtain credit in the short to medium term, and it could affect you in the longer term too.
Find our more about Debt Management Plans here.
Individual Voluntary Arrangement
Individual Voluntary Arrangements (IVA) let you pay back as much of your unsecured debt as you can, usually over a five year period. You will need to be able to make regular payments towards your debts, but these payments will be affordable and will take into account essential living costs. This includes things such as your rent or mortgage, food, utilities and travel costs.
If you successfully complete your IVA, any included outstanding balances on your unsecured debts will be written off.
However, IVAs do have consequences. For example, if you own your own home, you may be asked to try and release equity in your property in the last year of the IVA to put towards your debts. If you aren’t able to do this, your IVA could be extended for up to an extra 12 months. An IVA will affect your credit rating whilst running, and for three months after it has closed, your details will appear on the Insolvency Register, which is publically available.
IVAs are available to residents of England, Wales and Northern Ireland.
Find our more about IVAs here.
Debt Consolidation Loans
If you’re finding it difficult to manage your monthly repayments, but you feel you could get them under control with a little help, a debt consolidation loan allows you to repay your debts at a reduced rate over a longer period.
You take out new credit to pay off your existing credit, and combine your multiple existing debts into one so that you only have to pay a single, manageable monthly amount, rather than lots of smaller ones. It could also help you reduce how much you pay every month. However, you’ll be repaying your debts over a longer period of time, which means that you could end up paying back more overall.
Debt consolidation loans may be unsecured, or they can be secured against your property. It’s really important that you’re confident you can meet the new monthly repayments, particularly if the loan is secured against your home, as missing repayments may result in it being repossessed.
Find our more about Debt Consolidation Loans here.