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An Individual Voluntary Arrangement is a legally binding agreement between you and your creditors that helps you pay off your debts at an affordable rate. An IVA is an insolvency solution that can affect your financial situation in many ways. Your credit rating will be affected for six years, from the date of arrangement is agreed. During this time your IVA will also be recorded on the Individual Insolvency Register.
You’ll have to keep to a budget agreed with your provider, and if you miss any payments your IVA can be extended to cover the arrears. It is unlikely that you’ll be made to sell your home, but you might be required to release equity from it by re-mortgaging.
For your IVA to be approved, the creditors who you owe 81% of your debt must vote at the meeting of creditors in favour of your IVA proposal.
A Debt Management Plan is an agreement between your creditors to pay all your debts. Debt management plans are often used for paying back non-priority debts such as credit cards, loans, and store cards.
You will pay back the debt by one set monthly payment, which is divided between your creditors. Most DMPs are managed by the DMP provider who deals with your creditors directly. It may take longer to pay back your debt because you are paying less each month. Charges and interest rates may be frozen or reduced but this depends on your creditor.
A DMP may show up on your credit record as you have not maintained contractual payments with your creditors once your debts are managed via a DMP.
A Debt Consolidation loan lets you switch your existing borrowing onto one loan, so you only need to make one monthly repayment. This type of debt option can vary and will be dependent on your personal circumstance, level of debt and affordability.
Bankruptcy is a formal debt solution when you cannot afford to pay back your debts. Applying for bankruptcy can have serious long-term consequences which should be taken into consideration.
As well as applying for bankruptcy yourself, someone you owe money too (a creditor) can ask the court to make you bankrupt if you owe over £5000.
To apply to go bankrupt you will need to pay £680 fee. If your income is high enough you will be asked to make payments towards your debts for 3 years. It is important to note that it will be more difficult to take out credit while you’re bankrupt, and your credit rating will be affected for six years. Should you wish to take out a future loan of more than £500 you must declare that you’re bankrupt, and this could have an impact on your ability to get credit for a substantial period of time.
Your bankruptcy will normally end after a year. After this period, you won’t have to repay the debts covered by the bankruptcy. However, you will still have to pay some debts such as court fines, and student loans.