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There is some confusion as to what is the best solution to help people with an unmanageable debt problem. Many financial institutions, banks and credit card companies have been trying to dissuade people from entering into either an IVA (Individual Voluntary Arrangement) in England and Wales or a PTD (Protected Trust Deed) in Scotland. In doing so, they are trying to reinvent the stigma which was traditionally attached to insolvency in the past.
You can't control your debt any longer when you cannot meet the minimum monthly repayments of your debts when they fall due and/or you cannot meet your essential monthly outgoings.
Firstly, you need to assess your complete financial position. The most straight forward way to do this is to complete a Statement of Affairs statement of affairs (SOA). The purpose of an SOA is to ascertain your debts, your monthly spend on essentials and any spare income you have left at the end of the month.
1) Debt management plan (DMP)-
With debt management, you have an informal arrangement with your creditors to pay off your debts over a period of time. There may or may not be some form of debt forgiveness (i.e. some debts may not be fully repaid) but you should definitely push for your debts to be frozen.
Debt management should only be considered if,
2) IVA / PTD -
An IVA or a PTD is a legally binding arrangement between your creditors and you. The purpose of such an agreement is to reach a compromise between you and your creditors to avoid the consequences of bankruptcy. With an IVA or PTD, there is debt forgiveness and your debts will be written off after 5 years for an IVA and 3 years for a PTD. An additional benefit of these solutions, which is normally overlooked or discredited, is the fact that you cannot get into any more debt. This, basically, forces you to live within your means and removes the temptation to create new debts while paying off the original ones. So, for the period of the arrangement you are being pushed to make financial adjustments to your lifestyle which will pay dividends in the future and help you avoid further pitfalls.
An IVA / PTD should be considered if,
There is a lot of debate on how IVA/ PTD or debt management plans affect credit ratings. You have to bear in mind that both will have an impact in some shape or form on your credit rating. However, with both you are showing responsibility and a commitment to dealing with your debt.
If you choose a DMP then you must bare in mind that you do not have a formal agreement between yourself and the creditor. The creditor can, at any time, decide at any point demand full payment of the debt and take formal action against you to recover their money.
If you choose an IVA/PTD then you have entered a formal agreement which binds the creditors to its terms. So, provided you keep to the terms of the agreement, the creditors cannot take any action against you to recover their money.
You must take affirmative action about your debt problem. Ignoring it can only make it worse and make it last even longer.
For more information about DMP's and IVA's visit our debt forum for help and support about your debt.
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