If you don’t have any savings or enough money to pay off your debt, you still have some options available to you. These include debt management plans, individual voluntary arrangements, administration orders, debt relief orders and bankruptcy orders. Exploring each option below will help you decide which might work for you.
Debt Management Plan
A debt management plan is anagreement between you and your creditors to pay off all of your debts.Usually, debt management plans are used when you can only afford to pay a small amount each month, or when you’re experiencing problems but will be able to make repayments within a few months. You can either arrange to do this yourself or through a licensed debt management company on your behalf. It’s important to be aware of any fees and not enter into an agreement before you know the details. While it might be more time-consuming, it’s often more cost-effective for you to make arrangements directly with your creditors rather than going through a management company.
Individual Voluntary Arrangement
An individual voluntary arrangement (IVA) is an agreement you reach with your creditors topay part of or all of your debts.This requires you to make regular payments to an insolvency practitioner who will divide this money between your creditors.
Administration Order
An administration order may be the best option if you have a county court or High Court judgement against you that you can’t afford to pay. If you meet the eligibility requirements, you can make amonthly repayment to the courtwho will divide it between your creditors.
Debt Relief Order
Debt relief orders are another way tohelp you get out ofdebt, providing you owe a lender less than £20,000, don’t have much spare income and don’t own your home. A debt relief order stipulates that creditors cannot recover their money without the court’s permission, and incurs a fee of £90. You may bedischarged from your debts after 12 monthsif you are still unable to pay.
Bankruptcy Order
A bankruptcy order** may be your only option if you cannot pay off your debts. To pursue this process, you will have to make an application which is considered by an adjudicator, who will ultimately decide if you should be made bankrupt. During a 12-month period of bankruptcy, any non-essential assets may be used to pay your creditors.
At the end of this period, most debts are written off, however, it’s important to be aware thatdeclaring bankruptcy has a serious, long-term effect on your credit rating.Bankruptcy will remain on your credit file for a further five years after your debts have been written off, and during this time it will be extremely difficult to get credit. This could make it hard to run a business, get a mortgage or even open a new bank account.
