Solutions

So what are the likely solutions that will apply to your problem?
Whilst each individual case is different, the solutions that are likely to apply to your case are some or all of the following:

Do nothing
This isn’t usually a solution, unless some of your debts are likely to be repaid in the near future, such as loans, which then frees up more cash for the payment of other creditors. Alternatively, you might be due a pay rise or some other improvement in your circumstances. However, by the time you have realised you have a financial problem, you have generally utilised this option several times in the past, and have concluded it will no longer solve your problem.

Remortgage
If you own your own home, you may be able to remortgage it and use the cash raised to reduce your other debts. Since mortgage payments are generally cheaper than loan and credit card payments, this can sometimes solve your problem. We have contacts who may be able to assist you to obtain a remortgage, even if you have an adverse credit history, need a high income multiple or a high loan to value mortgage. There may also be some other way of re-organising your financial affairs which could provide a solution.

Debt management agreement
It may be possible for you to agree with your creditors that interest on your debts will be frozen, and you will repay your debts in full over a period of time using a single set monthly payment. This is then split between your creditors. This can reduce your monthly credit payments to a more manageable level. However, depending upon the size of your debts and the level of your income, such an agreement can involve payments for a long period of time. Because of this, we generally only recommend debt management agreements for relatively low levels of debt (say under £25,000 but dependent on income). Where they are suitable, we recommend using the Consumer Credit Counselling Service, who are a charity and will not charge you for their services, unlike many other providers.

Individual Voluntary Arrangement (IVA)
An IVA is similar to a debt management agreement in that interest on your debts is generally frozen, and you pay a set monthly payment towards those debts. However, the advantages of an IVA in many instances is that these payments can be for a relatively short period of time, usually five years, and it is often not necessary to pay creditors in full. In fact, IVA’s typically write-off a significant proportion of your debts. The exact level of the payments required and the amount of your debt written-off will depend upon your particular circumstances, and we can advise you as to what is likely to be required.

Since payments into your IVA are set at what you can reasonably afford, it is not uncommon for your contributions to be set at a fraction of your current debt repayments. This then allows you to bring your finances back under control, in the knowledge that at the end of the IVA you can start again with a clean slate.

One drawback of an IVA is that if you have an asset of substantial value, such as your share of the equity in your home for example, creditors may wish this asset to be realised and the funds raised paid into your IVA at some stage. This is, however, not always necessary, especially where the asset value concerned is relatively small. We can advise on the likelihood of this being required

We set up and run IVA’s in appropriate circumstances, but will not advise you to undertake one if there are other solutions better suited to your particular situation.

Bankruptcy
When you are made bankrupt, your trustee will start to realise any assets you have of significant value. He will also review your income and expenditure, to see if you are in a position to make payments towards your creditors, bearing in mind that you no longer need to make payments directly to them.

If he believes that you are able to make such payments, these will generally be at a lower level and for a shorter period than those likely to be required in an IVA. This may mean that bankruptcy is a cheaper and quicker option for you compared to an IVA. However, it can be more difficult to safeguard any assets of significant value in bankruptcy, such as your home. In addition, your bankruptcy will be publicised, and it can cause problems with certain occupations (such as being a company director). Creditors generally also receive a lower return from your bankruptcy than they would from an IVA.

Bankruptcies can be particularly useful for those people with little in the way of assets or surplus income after paying their reasonable living costs. We offer a service to assist people to make themselves bankrupt in appropriate circumstances although, once bankrupt, we are unlikely to be able to assist further.