If you are struggling with rising debt and based in England or Wales, there are several options available to help you manage your payments or even reduce your debt entirely. Your situation will determine which option is best for you. The amount you owe and conditions like your income and assets will go a long way. The first thing you need to do is speak to a professional debt advisor who is available for free and who can advise you on the best way to move forward without judgment.
Debt Management Plan (DMP)
A debt management plan is one of the most common options for those with debt settlements that they can no longer keep up with. Debt management plans (DMPs) are created for those with non-priority debts such as business cards, personal loans, and credit cards, and work with a DMP provider who negotiates with your creditors to create a payment plan that you can afford. You then make a consolidated payment to your DMP provider, who will pay off your various debts over a set period of time.
Debt management plans are only good for non-senior loans, including bank loans, overdrafts, credit or debit cards, and money borrowed from family members or friends. You can’t use a debt management plan to pay off senior debts like council taxes, fines, or electricity and gas bills and need to look for an alternative option if this is the case for you. To find out if a debt management plan is right for you, contact a debt counseling organization and speak to one of their specialists to ensure that all of your payments are used to pay off your debt.
Debt Relief Order (DRO)
A debt relief order is created for more serious debt cases and can only be used if you meet a certain number of criteria, mainly related to your wealth and income level. If you have a low income and very few investments to use to pay off your debt, you may be able to freeze your payment for a year and possibly have it written off after that time if your conditions have not improved. A debt relief arrangement is likely to be in place only if your circumstances make it unlikely that you will ever pay off your debt.
To apply for debt relief, you must have debts of less than £ 20,000 while you do not own assets that are over £ 1,000 in value and have saved less than £ 1,000. Plus, you need to have less than £ 50 each month after paying all of your monthly household bills. You cannot apply for a debt relief notice if you have filed for bankruptcy or if your debtors have filed for bankruptcy.
If you can apply for debt relief, you may have frozen multiple debts known as qualified debts. These include a mix of senior and senior loans like overdrafts, credit cards, rentals, utility bills, and income taxes, but there are quite a few specialty loans like student loans, fines, and social fund loans. First, contact a debt counseling firm and have a professional assess your situation who will set up your debt relief order if necessary. This costs £ 90 which can be paid in smaller amounts over a six month period if necessary. Only when you have paid does debt relief take effect.
Individual Voluntary Agreement (IVA)
An individual voluntary arrangement is a system that allows you to take out multiple sources of debt, combine them into a single loan, and then pay them off at a lower monthly amount over a set period of time. Then all remaining debts are paid off. You can apply for an individual voluntary arrangement if you have enough income to pay off part of your debts but not the monthly amounts your creditors ask. In order to reach an agreement, you will need to show that you have enough income to cover your repayments over a five or six year period, or sufficient savings to pay a lump sum. A bankruptcy administrator such as Jubilee 2000 UK must be contacted to prepare your voluntary agreement proposal which will be sent to your creditors who will need to agree to the terms set out. If they agree, you sign a legally binding contract, which means that you must adhere to the payments set out in the proposal.
An individual voluntary arrangement can repay multiple debts and credits, including overdrafts, mortgages, credit cards, and catalog debts. Still, it cannot be used to repay your student loan or fines. Always check with your debt counselor to see what debts are on your IVA and which are not. An IVA consists of a monthly fee that is paid to your bankruptcy trustee for entering into the agreement and that goes into your monthly payments. So always take this into account.
In the event of bankruptcy, all of your debts will be written off or paid off with your money or assets so that you can start over. Filing for bankruptcy is an important process and you must have all of the information about your debts, expenses, income, and letters from your creditors to start the process. Your application goes to an insolvency service professional who will make the decision.
Once declared bankrupt, your income and assets will be reviewed to determine the best way to pay off your debts. The assessment may include an interview and your creditors will need to collect any money owed with any assets and savings that you used to repay your loans. After a set period of time, usually a year, your debt will be written off so you can start over. During this bankruptcy period, you will be subject to restrictions which means you cannot apply for a loan over £ 500 without telling the lender that you are currently bankrupt so that they can make the decision whether or not to give you credit. Bankruptcy will show up on your credit rating for at least six years and will affect your ability to borrow significant amounts of money.
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