|
|||
| The independent answer to your debt problems | login join | ||
Serious debt occurs when there is insufficient income to cover all the outgoings. It can arise through general overspending or due to a change in personal circumstances such as a divorce or losing your job. No matter how it happens, once debt starts to get out of control, it is important to seek advice as to how best to get the situation back to a manageable level.
Advice on the various options open to get control of your debt is available at any Citizens Advice Bureau or Licensed Insolvency Practitioner.
Where the debt is below £15,000, the best option may be to enter into a debt management agreement which is a voluntary arrangement between you and the people you owe (creditors) on how your debts are to be repaid.
For more serious debts (typically above £15,000) a more formal arrangement is required to make sure that there is consensus between all the parties involved and a legal agreement on the terms of how the monies will be repaid. An Individual Voluntary Arrangement (IVA) is a legally binding contract between you and all your creditors as to how your debts will be repaid. It is necessary for 75% (by value of debt) of your creditors to agree to a formal agreement and they are likely to do this provided they can see evidence that they will get at least 25% of what they are owed over a five year period. Once approved, the terms are binding on all creditors, not just those who voted for it.
The terms of an IVA can be negotiated on your behalf by a Licensed Insolvency Practitioner. They will draw up a list of all your assets and sources of income and broker a settlement with your creditors. Once agreed, you are protected from any other action such as fees and interest rate changes provided you make the agreed payments in a timely manner. The IVA will be managed by the Licensed Practitioner and they will take a fee from the monthly payments.
Under an Individual Voluntary Arrangement you will not necessarily lose your home. However, if you have some free equity (i.e. the value of the house is greater than any mortgage) then you will need to try and re-mortgage to release funds to reduce some of the debt.
A normal term for an IVA is 5 years at the end of the five year period any outstanding loans are written off and, effectively, you have a fresh start.
If you are unable to keep to the terms of the IVA or the creditors do not agree to enter into one, then you may have to consider bankruptcy. This is a serious decision and should not be taken without seeking professional advice. Bankruptcy will take control of all your assets and you will be severely limited on what financial freedom you have for many years to come.
