5 Signs You Might Be Facing Bankruptcy

Here in the UK, debt is a national crisis affecting people from all walks of life. And when debt really gets out of control, declaring bankruptcy is often the only viable option for dealing with them. On the plus side, bankruptcy and other forms of personal insolvency, such as IVAs and DROs, don’t carry the stigma that they once did.

If bankruptcy turns out to be the best way to manage your debts, there’ll be some difficult times ahead – but you could walk away from your money problems just 12 months after your Bankruptcy Order is made. This article looks at 5 common warning signs that bankruptcy might be just around the corner.

  1. You’re relying on credit to make ends meet

In recent years, static wage and salary levels combined with rising living costs have left many people trapped in a vicious circle of never-ending debt.  And if you’re spending more than you earn each month, you’ve got problems. Whether you’re relying on credit cards, bank overdrafts, payday loans or even all three, the situation won’t go away on its own, so it’s time to seek expert help.

  • Your credit cards are always maxed out

Thanks to irresponsible lending practices that the FCA is trying to stamp out, many people have ended up with combined credit card limits that out-strip their annual incomes several times over. And if temptation proves too much, you could find yourself with a mountain of debt and no realistic way of paying it off.

A key warning sign is only ever paying the minimum payment because that’s all you can afford. You might feel that by doing this you’re keeping your head above water, but in reality, you could be heading for serious trouble.

  • You’re avoiding your creditors

If you’re leaving bills and reminders unopened, avoiding creditor phone calls and not answering the front door bell, then things have got out of hand. You need to stop sticking your head in the sand and hoping the problem will go away on its own. As soon as bankruptcy, or any other form of personal insolvency, is put in place, your creditors will be legally obliged to leave you alone. So, the sooner you take action to tackle your debts, the sooner the harassment will stop. The ball’s in your court.

  • You’re worrying excessively about your debts

Everyone worries about money every now and again. But your debts shouldn’t be keeping you awake at night, giving you nightmares or distracting you from work or other activities. It’s a sad fact that being in debt is often linked with the development or worsening of mental health problems such as anxiety and depression, which can have serious long-term consequences for your health.

So if you’re feeling overwhelmed by your debts, or your money problems are dominating your life, it’s crucial to seek professional debt advice straightaway. Trained debt advisers are fully aware of the health problems that debts can cause. They’ll discuss your situation with you in confidence and can refer you to appropriate support services if required.

  • You receive a repossession notice

You probably know that your home can be repossessed if you don’t keep up with your mortgage payments, or repayments of any other loan that’s secured on it. But did you know that your unsecured creditors, such as credit card providers and payday loan companies, can also take steps to repossess your home or other assets?

This can happen under the following circumstances:

  • Your creditor takes out a County Court Judgement (CCJ) against you and then applies for a charging order to enforce it, and
  • The charging order is made final (it’s a two stage process) and you don’t comply with the terms and conditions required by the court, and
  • You’ve missed payments that the court ordered you to pay on the CCJ.

If you’ve had a charging order made against you, this means that the court has ordered the amount of your unsecured debts to be secured against the value of your home or another asset. In most cases, your creditors will happily wait for you to sell the asset in question before collecting what’s owed to them. But under the circumstances described above, they can try to make you sell the asset immediately.

Receiving a charging order is itself a sign that your debts are severe, but a repossession order takes things to a wholly different level. It’s imperative to consult a qualified debt counsellor or licensed insolvency practitioner for advice as soon as possible.

How To Clear Your Debts Yourself

If you can no longer afford to meet your credit commitments, you need to act fast to get things under control. There’s no use burying your head in the sand, as the problem won’t go away on its own. However, the good news is that are plenty of options available to help you clear your debts.


What’s the best debt solution for me?
The right solution for you will depend on your individual circumstances. For example, the size and type of your debts, whether you own your home and how much (if anything) you can afford to repay your creditors.
There’s a huge amount of information out there about the different debt management solutions and how they work, and it’s easy to feel confused or overwhelmed. That’s where speaking to a qualified debt adviser can help.


Three of the most common debt solutions that might be available to you are:
 Debt management. This might be a suitable choice if you owe unsecured debts such as credit cards and payday loans that total more than £3,000 and you’re able to pay your creditors at least £100 a month. It might take you a while to pay off your debts, but we may be able to get your creditors to freeze interest and charges on your accounts, relieving some of the pressure. Debt management is also an informal solution that offers more flexibility than some other options.
 Individual Voluntary Arrangement (IVA). You could consider an IVA if you owe more than £8,000 in unsecured debts to multiple creditors and can afford to pay your creditors at least £100 a month. Unlike debt management, an IVA is legally binding and you must stick with it for five or six years. On the plus side, you’re unlikely to lose your home if you own your property and you’ll have legal protection from your creditors. Best of all, any leftover debts within the IVA will be cancelled when it ends – helping you clear your debts once and for all. Read more.
 Bankruptcy. Forget the old-fashioned stigma around bankruptcy. Times have
changed and it’s now potentially a viable option for anyone with serious debts and little or no assets or income with which to repay them. Yes, there are still restrictions and implications that you’ll need to consider very carefully before going ahead. But if, like many bankrupts, you end up being discharged after 12 months, you could be leaving most or all of your debts behind in just a year’s time. And of course, our team will be on hand to support you every step of the way, from helping with the paperwork to offering advice on your court appearance.

Of course, there are many other ways of dealing with debt. These include:
 An Administration Order
 A Debt Relief Order (DRO)
 Consolidating your debts
 Full and final settlements
 Token payments (a temporary measure).


How do I get started?
Simply get in touch with NationalDebtLine. who will be able to provide you with further guidance. Once you’ve decided how to clear your debts, their expert advisers will implement your chosen solution and offer ongoing help and support.

IVA And Your Credit Rating

If you’re already having debt problems, the chances are your credit rating has already been adversely affected. However, your choice of debt solution could make a difference to your future credit applications, so it’s important to bear this in mind if, for example, you want to apply for a mortgage at some point.

If you’re already having debt problems, the chances are your credit rating has already been adversely affected. However, your choice of debt solution could make a difference to your future credit applications, so it’s important to bear this in mind if, for example, you want to apply for a mortgage at some point.

What information appears on your credit file?

If you choose an informal Debt Management plan vs an IVA, it’s possible that this won’t appear on your credit file at all. However, your creditors might ask for a note to be added about your plan. In a way, this could work in your favour as it shows that you’re taking positive action and are committed to paying off your debts.

On the other hand, if the plan isn’t marked on your credit file, you could continue to accrue adverse payment information on the debts you’re paying off. This is because you’ll be paying a lower amount each month than shown in the original credit agreement, which could be recorded as missed payments on your credit file. If this happens and the debts end up defaulting, this information will stay on your file for six years from the date of default.

For an IVA, Bankruptcy and other forms of personal insolvency, the start date will always be marked on your credit file. When your insolvency period comes to an end, another record will be added. These records will both be removed six years after the start date, unless there are unusual circumstances such as a Bankruptcy Restrictions Order.

What happens during the six year period?

During the six years that adverse information appears on your credit file, you’ll find it harder and more expensive to obtain credit. If you’ve been made insolvent, you may also be subject to restrictions around applying for credit during the initial period when your bankruptcy, IVA or DRO is in place.

In any case, it’s a good idea to get your existing debts completely cleared before you even think about applying for more credit. If you’re in an IVA plan, this means waiting until the arrangement or plan has completely finished – which could take six years or more anyway.

What happens after the six year period?

Once the adverse information has dropped off your credit file, you may find it easier and less expensive to obtain credit. However, some lenders will require you to disclose whether you’ve ever been declared bankrupt or insolvent, so you’ll need to be honest about this.

And if you apply to lenders to whom you’ve previously been in debt, you may find they won’t lend to you, as they could still have details of your debts on file.

Regarding mortgage applications, it’s important to note that all forms of personal insolvency could affect your chances of obtaining a mortgage – not just bankruptcy. Your best bet is to speak to a mortgage broker who specialises in helping people with poor credit histories, as they’ll be able to recommend suitable lenders to approach.

When can I start to repair my credit rating?

You can start repairing your credit rating as soon as any restrictions around applying for credit have been lifted. In the case of bankruptcy or a DRO, this could be just 12 months after the order is made against you. However, as already noted, it will be another five years before this information is removed from your credit file, so you may find there’s nothing you can do for the time being.

On the other hand, if you can find a provider that’s willing to lend to you (and your old debts have been wiped out by the DRO or Bankruptcy Order) – go ahead. The sooner you can start building up positive credit information, the better. Start small with a credit card that’s designed for people with poor credit histories. Use it sensibly for small transactions and pay off the balance in full every month. In time, you could try applying for a mobile phone contract or pay-monthly car insurance policy. But be very careful not to over-stretch yourself!

Adding New Debts To An IVA

When you decide to enter into an IVA, you’ll be asked to disclose all your unsecured debts so they can be included into your IVA. These include debts run up on credit and store cards, payday and personal loans, bank overdrafts and catalogue accounts. You’ll also need to list arrears from everyday living expenses such as overdue rent, Council Tax and utility bills, as well as any overpaid benefits or tax credits.

However, despite your best efforts, you might end up accidentally missing some of your debts off the list. This might be because you’ve simply forgotten about them, or because you’ve not heard from the lender for such a long time that you assume the debt has been written off.

Whatever the reason, these ‘forgotten’ debts will need to be addressed, so it’s important to tell the licensed Insolvency Practitioner (IP) who manages your IVA about them as soon as they come to light. What happens next will depend on several factors.

The size of the debt

If the new debt is worth less than 15% of the total amount of debt already included in the IVA, your IP should be able to add it into the IVA without consulting your creditors. If the debt amount is over 15%, your IP will need to get permission from your creditors before adding it in.

They’ll do this by calling a variation meeting and asking your creditors to vote whether or not to accept the new debt. Other factors may also be discussed, such as a change in your monthly payment amount or an extension of the IVA term. Just like at the original creditors’ meeting, the variation(s) will only be approved if at least 75% of your creditors vote in their favour.

Whilst some renegotiation may be required, evidence suggests that most creditors are happy to accept new debts into an existing IVA – even if this means they receive less money in the long run. The obvious reason for this is that rejecting the new debt could cause the IVA to fail and they could end up receiving nothing.

NB. Once a new debt has been accepted into an existing IVA, the ‘forgotten’ creditor is bound by its terms in the same way as your other creditors and can’t take any other action against you to recover the debt. If the new creditor isn’t happy with the IVA’s terms, they have 28 days from the date they were told about it to challenge the IVA if they wish.

The type of debt

Benefit and tax credit overpayments are two of the commonest ‘new’ debt types that people ask to introduce into an existing IVA. This is because you may not have known that you were being overpaid when the IVA was set up. Provided that the overpayment wasn’t a result of fraud, the amount will be dealt with following the process set out above.

If fraud was involved, then this will be investigated by the relevant organisation, such as HMRC. This could result in civil or criminal proceedings being taken against you, which could see fines being added to the amount you already owe. You can’t add the overpaid amount or any resulting fines to your IVA.

Whether the debt is accepted into the IVA

In some cases, your existing creditors won’t accept the new debt into the IVA and you’ll have to find a different way of dealing with it. For example, you or a debt adviser could try to negotiate a repayment plan with the ‘forgotten’ creditor that you can afford on top of your IVA payments. If this isn’t possible, your IVA will probably fail.

If your IVA fails, your options are somewhat limited. They include:

  • Bankruptcy or a Debt Relief Order (DRO) if you don’t own your home. A DRO has very strict eligibility criteria, such as having a maximum debt of £20,000, but the fees are much lower than for bankruptcy.
  • If you own a home or other expensive assets, you could consider selling these and using the proceeds to pay off your debts. If the amount isn’t enough to clear your balances in full, you or a debt adviser could try and negotiate full and final settlements with your creditors. This involves persuading them to accept a single, one-off lump sum against the debt amount and cancelling the remaining balance.
  • Borrowing money from family or friends to enable you to clear your debts or offer your creditors a full and final settlement. If you choose this option, you’re advised to approach the loan formally and put a written agreement in place stating the repayment terms and what will happen if you can’t repay the debt.

Brand new debts incurred after your IVA has started

Moving on to a slightly different topic, it sometimes occurs that a person with an IVA in place manages to obtain additional credit during the IVA’s term. If this happens and you then default on the loan, you’ll have broken the terms of your IVA and it will probably fail. Your options will then be the same as set out above.

Debts that arise after an IVA has finished

It’s rare that a ‘forgotten’ debt will resurface after an IVA has run its course. However, if this happens, the creditor is legally entitled to receive the same amount as they would have been paid through the IVA. You’ll need to contact your IP to find out how much you owe them and discuss how to make payment.

What’s Best -Debt Management Or An IVA ?

Debt management or an IVA?

We’re often asked about the differences between Debt Management and Individual Voluntary Arrangements (IVAs). It’s certainly true that there are some common elements, which is where confusion can arise. However, there are also a number of key differences which we will explain to help you consider which solution might suit you best.

Your debt amount and repayments

You’ll need to owe at least £3,000 in unsecured debts such as credit cards and loans to qualify for Debt Management. For an IVA, the amount owed will normally be at least £8,000, owed to at least two unsecured creditors.

With both solutions, you’ll need to be able to repay at least £100 a month. The amount you can afford to repay will be calculated by your debt adviser. They’ll also work out the proportion of each monthly payment that should go to each creditor. The resulting information will be used to create repayment proposals for your creditors.

Note that neither Debt Management nor an IVA can be used to pay off secured debts, such as mortgage arrears. You’ll need to pay these separately, or consider a solution which includes this type of debt, such as bankruptcy.

Informal vs. formal

Many people are attracted to Debt Management because it’s an informal option. It can be set up and managed without an Insolvency Practitioner (IP) or the courts. No one needs to know about your plan, so you can keep it private. You can cancel it at any time, or change the amount of your monthly payments if your finances change. However, the informal nature of Debt Management also means your creditors can still take you to court at any time.

On the other hand, an IVA is a formal solution that can only be set up and managed by an IP. Both you and your creditors are legally bound by its terms and they can’t take you to court once the IVA is in place. You’ll need to make all your payments on time and comply with the IVA’s terms, or your creditors could try to force you into bankruptcy. As with Debt Management, it may be possible to increase or decrease your monthly payments if your finances change.

Fees

You’ll need to pay set-up and management fees for both solutions. However, these will be included within your monthly payments. The fees involved are based on each persons individual circumstances.

Creditor acceptance and contact

As you’d expect from an informal solution, your creditors aren’t obliged to accept a proposed Debt Management plan. And whilst they may agree to freeze interest and charges, they’re not obliged to do so. However, our debt advisers will do our best to negotiate favourable terms. Even if not all your creditors accept our proposals, the plan may still go ahead. And once it’s in place, we’ll distribute your monthly payments and deal with your creditors on your behalf, making life a little easier for you.

For an IVA to go ahead, at least 75% of your creditors (by debt value) must agree to your IP’s proposals. If the IVA is approved, any creditors who voted against it will still be bound by its terms, and interest and charges on your accounts must be frozen. As with a Debt Management plan, your IP will take over all contact with your creditors and distribute your monthly payments on your behalf.

Time period

There’s no set time period for Debt Management – it depends on how much you owe and the new payment amounts that we’ll negotiate for you. Once the plan is in place, it will continue until your debts have been cleared in full. It’s important to note that you could end up making payments for longer, and repaying more in total, with Debt Management than under your original credit agreements.

An IVA runs for a set time period, usually 60 months. After this time, provided you’ve paid on time every month and complied with its terms, the IVA will end and any remaining unsecured debts within it will be written off. (This is why an IVA can be a better option for people with large debts that could take a long time to clear with Debt Management). However, if you miss any payments, your IVA may be extended or could fail.

Your home

You can apply for Debt Management or an IVA whether or not you own your home. An IVA is different from bankruptcy in that you can usually stay in your home. However, you’ll normally be asked to release equity or re-mortgage the property for the benefit of your creditors. If this isn’t possible, the IVA may be extended for another 12 months.

Choosing Debt Management can be more risky for homeowners as your creditors could try to repossess your home through the courts at any time. However, this is less likely if all your unsecured creditors accept the plan and you stick to your monthly payments.

Please note that, whatever happens with your Debt Management plan or IVA, you’ll still be at risk of having your home repossessed if you don’t keep up with your mortgage or other loan repayments that are secured on it.

Your credit rating

Both solutions are likely to affect your credit rating, although this may well be poor anyway. An IVA will remain on your credit file for up to six years from the start date, which could make it harder to get credit in the future. You’ll also be restricted from obtaining more unsecured credit during the IVA, as part of its terms.

With Debt Management, your plan won’t be mentioned on your credit file, but your loans and agreements may be shown as being in default, which could affect your ability to get credit for a while.

Plan or arrangement failure

If you don’t make all your monthly payments on time, or comply with all the terms of your IVA, your Debt Management plan or IVA could fail. If this happens, your creditors will be free to pursue you through the courts for repayment, which could include trying to repossess your home or force your bankruptcy.

This is why it’s so important tell your IVA company about any issues that prevent you from, or make it hard, to meet your monthly payment commitments. You may be able to reduce your Debt Management or IVA payments, if your creditors agree to this, so please talk to them as soon as any problems arise.

IVAs For The Self Employed

Until Individual Voluntary Arrangements (IVAs) came along, the main alternative for business owners with serious debt problems was bankruptcy. Unfortunately, whilst this would solve the immediate issue of dealing with overwhelming debt, it also meant that the business usually had to be closed, staff laid off and any assets such as buildings sold.

IVAs have changed all that, making life a little easier for self-employed people who find themselves struggling with debt. We take a look at how IVAs work for business owners and answers some of the questions we’re often asked by our self-employed clients.

A solution for both personal and business debts

The beauty of an IVA is that you can include both your personal and business debts within it. This includes any overdue taxes (including VAT) and National Insurance that you owe HMRC. This comes as a relief to many business owners, as HMRC doesn’t take any prisoners when pursuing debts.

You can also include loans and credit cards taken out in your company name and any unsecured debts that you owe personally. It’s important to note, however, that an IVA can’t be used for secured debts such as mortgages or Hire Purchase agreements. So if you have debts secured on property, or equipment such as printing presses, you’ll need to keep up with your payments to avoid repossession.

You can carry on trading as normal

Your day to day business operations will be largely, or completely, unaffected by your IVA. If you owe money to your personal and/or business bank through a loan or overdraft and this is included in the IVA, you’ll need to close the accounts in question and open new ones. But otherwise, you should be able to carry on as normal: keeping your finance agreements in place, and retaining your business assets and staff.

Your clients don’t need to know

An IVA is a more private solution than bankruptcy. Details will appear on the public Insolvency Service register but not in the newspapers, so it’s unlikely that your clients will find out about your debts unless you tell them yourself. This element of privacy is a big advantage of a self employed IVA, as it could help you retain business that you might otherwise have lost.

You’ll need to keep a close eye on cashflow

When you enter into an IVA, you’re committing to pay a set amount off your debts each month, usually for five years. This means you’ll need to keep a very close eye on your business cashflow to make sure you can keep making these monthly payments. You’ll also need to show the licensed Insolvency Practitioner (IP) dealing with your IVA that you can afford the payments in the first place, by presenting your accounts and cashflow projections.

If you do experience a dip in cashflow during your IVA, it’s not the end of the world. Your IP may be able to vary the amount of your monthly payments for a while, if your creditors agree to this. It’s important to note, however, that the IVA will fail if you don’t meet the payment obligations agreed with your creditors – and this could lead to your bankruptcy.

You’ll be subject to certain restrictions

An IVA doesn’t change your working life in the way bankruptcy would, but there are still some important factors to bear in mind. There’ll be restrictions on your expenditure and you probably won’t be able to get any more credit (secured or unsecured) whilst the IVA is in place. Your credit rating will also be affected for up to six years from its start date.

Also, if you own business or personal property, you may be required to re-mortgage or release equity from it during the IVA, usually in year four, for the benefit of your creditors. If you’re unable to do this, the IVA may be extended.

Debt Management may also be an option

If an IVA isn’t a suitable option, you may be able to consider Debt Management instead. You’ll need to have unsecured debts of more than £3,000 and be able to repay your creditors at least £100 a month. Debt Management is an informal solution, so it doesn’t give you the legal protection offered by an IVA, but it could help you avoid bankruptcy if your debts aren’t too serious.

Do I Need To Remortgage During An IVA

If you are a homeowner and have equity in your property then you’ll usually need to remortgage or release equity from your home during the fourth year of your IVA. An Individual Voluntary Arrangement (IVA) can be an option for managing your debts if you owe over £6,000 in unsecured debts and can afford to make monthly repayments of at least £80. If you’re a homeowner, an IVA offers you an advantage over bankruptcy and Debt Management, as your home will be protected from legal action by your creditors.

Once your IVA is in place, your creditors can’t ask the court to make a charging order that would secure previously unsecured debts against your house or flat. They also can’t petition for your bankruptcy, which could lead to your home being sold for the benefit of your creditors.

However, it’s important to recognise that your home could still be at risk with an IVA, for example, if you don’t keep up with your monthly payments. And you’ll almost certainly be required to either re-mortgage or release equity from your property to help repay your debts.

Here we will answer some of the most common questions we’re asked about re-mortgaging or releasing equity during an IVA.

1. When will I need to re-mortgage my home?

You’ll usually need to re-mortgage or release equity from your home during the fourth year of your IVA. Most IVAs run for five years, so you’ll be coming towards the end of the arrangement. The reason for this timing is to give you some breathing space to get back on your feet, so you won’t be hit too hard by the additional costs of re-mortgaging or releasing equity.

2. Will I be told about this in advance?

Yes. The licensed Insolvency Practitioner (IP) who sets up your IVA will discuss the possibility of re-mortgaging or releasing equity before the arrangement is set up. If they decide that this will be required, it will form part of the proposal that will be sent to your creditors for consideration. If the IVA is approved, the requirement to re-mortgage or release equity will then be written into its legally-binding terms.

3. How much equity will I need to release?

Your creditors will expect you to raise as much money as possible to help repay your debts. However, the amount you’re able to borrow will depend on your individual circumstances, such as your credit history and the amount you can afford to repay your lender each month. The percentage of equity you can release from your property may also be capped to, say, 75% or 80%, by individual lending policies.

4. Will I get the same interest rate as my current mortgage?

Not necessarily. The interest rates available to you will depend on market conditions and may also be affected by your credit rating and/or payment history with your current lender. This could mean that you end up paying more for the amount you’re currently borrowing on top of the additional amount for the re-mortgage or equity release loan. There may also be upfront fees to pay, even if you stay with the same provider.

5. What if I can’t re-mortgage or release equity?

It isn’t always possible to re-mortgage, even if this is part of your IVA terms. For example, your credit history or general market conditions might stop providers lending to you. Or, your financial circumstances may have stayed the same or got worse during your IVA, in which case you would be unable to afford the added burden of increased mortgage payments.

Your IVA terms will set out in advance what will happen if you’re unable to re-mortgage as planned. In most cases, your IVA will simply be extended by 12 months. Your normal payments will continue for an extra year, so your creditors will still receive some of the money they were expecting from a re-mortgage or equity release.

6. If I can’t re-mortgage, will my debts still be written off at the end of the IVA?

Yes, provided that you make all your monthly repayments on time and stick to the IVA’s other terms. Even if extending your IVA by a year doesn’t pay your creditors as much as if you’d been able to re-mortgage or release equity, this won’t stand against you. After the IVA has ended, any leftover unsecured debts listed within it will still be cancelled.

7. Can I re-mortgage earlier than Year 4 of my IVA?

If your situation makes this possible and your IP agrees, yes. Circumstances like getting a better-paid job or co-habiting with a partner can increase your disposable income, enabling you to raise money against your property when this wasn’t possible before. On occasion, this has even enabled people to settle their debts in full and end their IVA early.

How To Apply For An IVA

If you are thinking that you want to apply for an IVA, you will more than likely be struggling with some form of debt and want an IVA plan setting up.

To apply for an IVA, the first thing you should do is speak to a professional debt advisor on the solutions available to you and to ensure an IVA is the best plan forward.

Where Can I Start My IVA Application?

There are a number of IVA companies out there who will happily speak to you and see if it is a suitable option for you. All you have to do is google ‘Setup an IVA’ and a number of IVA sites will appear. There are also charity debt companies such as the debt foundation.

Below is a list of some reputable sites you can make an IVA application through :

www.stepchange.org

www.nationaldebtline.org

www.debtadvicefoundation.org

www.fresh-finance.net

The initial advice is free and will provide you with a good understanding on whether an IVA is right for you. This will typically take 20 – 30 minutes. You will want to ensure you can consistently afford the monthly payment into an IVA during the course of the 5/6 year plan. You will be under no obligation to proceed if you don’t feel it is the correct debt solution for you. It is an informal chat and all conversations should be kept confidential.

To have an understanding of your financial situation, you will need to provide information on your income and monthly outgoings and the outstanding balances on your debts. This will allow a debt advisor to build up a financial picture and asses your affordability towards an IVA. Once done they will either confirm an IVA as appropriate or offer alternative solutions.

Do I Qualify For An IVA

To Qualify for an IVA you will typically need to:

  • Be struggling with your current unsecured debts
  • Have more than £6,000 of unsecured debt
  • Be able to afford £100 or more towards your IVA
  • Have 2 or more creditors

If you feel an IVA is the solution for you and you have provided all the necessary information an Insolvency Practitioner will draft a proposal and present it to your creditors at a creditors meeting. This proposal will demonstrate your affordability to pay back your debts and return to creditors.

How An IVA Works

To be accepted for an IVA, at least 75% of your creditors who vote will have to accept the proposal. Once 75% or more have accepted, all creditors will have to accept the IVA proposal even if some of your creditors originally objected the proposal.

Following the creditors meeting, provided its been approved, the IVA comes into effect and you will start paying back your debts in monthly instalments. Your Insolvency Practitioner will act as the supervisor to the IVA and distribute your monthly payments to your creditors.

At the end of your 5/6 years, any remaining balance on your debts will be written off. You will be provided will all the information on how long your IVA will last, how much your monthly payments will be, how much will be written off, the fees involved etc before you begin your IVA plan.

You should note an IVA is a formal debt plan and breaking the agreement will have a negative impact on your financial situation and could lead to bankruptcy.

The Main Differences Of An IVA vs DMP

In short, the main differences between an IVA vs a DMP is that an IVA is a formal solution that both you and your creditors must stick to, usually over 5 years. A DMP is an informal debt solution meaning neither yourself nor your creditors are obliged to stick to the plan.

Both plans have many more differences and their own pros and cons. In this article we will help explain the differences between both plans and that will hopefully help you understand which solution is better for you. Below are the main differences between an IVA and a Debt Management Plan.

An IVA like a Debt Management Plan allows you to consolidate your unsecured debts into one affordable monthly payment which will then be distributed amongst your creditors. Your monthly payment will be determined by examining your affordability through your income/expenditure.

Creditor Protection

An IVA is administered by an Insolvency Practitioner who will work on your behalf to find a repayment scheme to pay back your creditors. With an IVA you are protected from your creditors who are no longer allowed to hassle/chase you for your debt. Your creditors will no longer be allowed to charge you anymore interest and charges.

With a DMP, a request is made to your creditors to freeze interest and charges which they are not obliged to accept. Usually, creditors will accept this request for a set period (6 months) whereby a new request will have to be put forward.

Length Of IVA Plan

With a Debt Management Plan, this will continue until either your debts are paid off or you or your creditors terminate the plan. They tend to last longer than an IVA as there is no debt being written off with a DMP. A reputable debt firm will provide you with an estimation of when the DMP will finish – subject to interest and charges being frozen

An IVA will usually last 5 years, possibly 6. You will know at the start of an IVA how much you will need to pay into your IVA each month and when the plan will finish.

DMP payments are flexible, IVA payments are not

With a DMP, your monthly payments are flexible, so if your working hours drop or your expenses unexpectedly increase, you can adjust you monthly payment so that it remains affordable. This will make your DMP last longer and decreasing your monthly payment should only be considered if you are genuinely struggling. Conversely, if your income increases and your disposable income increases you can pay more into your debt management plan.

With an IVA, your payment is fixed from month one. If you do have some financial struggles during your IVA there may be an option to decrease your payments slightly or have a 9 month payment holiday. Generally, an IVA would fail if you cannot maintain the monthly payment agreed. If an IVA fails, you will be back to square one and may be forced to consider bankruptcy

Debts Written Off With An IVA

This is the one most of you will want to know – how much debt can be written off? The frustrating answer is, its depends on an individual’s circumstances. At the end of an IVA, any remaining unsecured debts will be written off. This can be as much at 80% written off in some extreme cases. With a DMP, none of your debts will be written off and your debt plan will finish once your debts have been paid off.

IVA Fees

An IVA will generally be more expensive to setup however the fees will be incorporated into your monthly payment, just like in a DMP so you won’t be receiving additional bills on top of your monthly payment.

Running The Plan

An IVA needs to be administered by a licensed insolvency practitioner, which is why the fees for an IVA tend to be higher. You will have to go via a professional debt company or a debt charity such as stepchange to start your IVA application. A Debt Management Plan can be run by a debt management company or by yourself. There are also debt charities which can help setup you debt management plan without charging a fee . If you want to go down the route of managing it yourself, there are some free templated letters you can download at the National Debt Line https://www.nationaldebtline.org/sample-letters/

IVA Creditor Meeting

An IVA is subject to a creditor meeting whereby the majority of your creditors have to agree. There is no creditors meeting with a DMP

For an IVA to be approved, 75% by the value of your debt of creditors who vote at the meeting have to agree. If you have one creditor who you owe a large sum to, they have the power to veto the IVA. Your insolvency practitioner should have enough experience to know which creditors will be difficult and will discuss this with you if he thinks they may be problematic.

For a DMP, each creditor is proposed individually. Even if one of your creditors rejects the proposal, it is still possible to continue with the DMP whilst negotiations continue with the tricky creditor. Not every creditor may agree to freeze interest and charges.

Your Credit Rating After AN IVA

Both solutions are highly likely to have an effect on your credit rating. If you are behind with debt repayments, it is likely your credit rating has already been damaged and your ability to borrow money will be low.

An IVA will affect your credit rating more seriously compared to a DMP. It will be very difficult to borrow money when on an IVA. The mark on your credit rating will last for the duration of your IVA.

Being on a DMP is will certainly affect your credit score. This is because you will be paying less than the minimum repayment agreed when you took out the debt. You may be required to remortgage or release equity during your IVA

Public Details

Anyone who enters an IVA will have their details published onto a public database called the insolvency register. With a DMP, your details are kept confidential

Am I Eligible for an IVA or a DMP?

The criteria for an IVA is slightly more strict than for a DMP. To qualify for an IVA you must :

  • Have over £5,000 of unsecured debt
  • Be able to afford at least £100 per month towards your debts
  • Live in UK (but not Scotland)
  • Owe to two or more creditors.

The criteria for a DMP is more subjective to the company you apply to. As a general rule of thumb, to qualify for a DMP you must have:

  • Over £3,000 of unsecured debt
  • Be able to afford at least £80 per month, some company’s may go as low as £60 per month
  • Live in the UK
  • Owe to two or more creditors