finance

Huge spike in people taking out IVAs to pay off debts should spark alarm bells, says charity


IF you’re struggling with debt then you can get help.

Debt Management Plan (DMP)

A DMP is an informal agreement so you can stop it at any time and resume the normal debt repayments, or adjust your payments if your circumstances change, like you lose your job.

It ends when you’ve paid off the debt so it could last for decades.

The plan is proposed to creditors individually so there’s not guarantee that the interest will be frozen.

Many firms charge a fee for the service, either upfront or one that’s incorporated into your monthly payments.

You can get a free DMP from the National Debtline, StepChange and PayPlan.

Individual Voluntary Agreement (IVA) 

It’s a lesser form of bankruptcy, which is a legally binding agreement with your creditors to pay off your debts over a set period of time that has been approved by the courts.

It must be set up by a professional called an insolvency practicioner who will charge a fee of around £5,000.

Your repayments are made to the insolvency practioner who distributes your cash.

If you come into some money during your IVA then your creditors may have the right to claim it.

If you have any savings or pension payments then these will go to your creditor. If you own a home you may have to remortgage it. You may also struggle to get credit while repaying an IVA and details of the agreement will remain on your credit file for six years.

If you fail to make repayments then you could be made bankrupt.

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The debts are written off after five years, regardless of whether you’ve paid them off in full.

Debt Relief Order (DRO)

A DRO is way to have your debts written off if you have under £20,000 of debt and no assests. You have to pay a £90 fee, make repayments and after 12 months your debts are written.

You can’t apply for a DRO if you’re a homeowner. It will negatively affect your credit score for six years and it maybe difficult to get credit during this time and details will be pubished publically.

Bankruptcy 

Bankruptcy is a last resort if there is no other way to repay your debts. It lasts from one year to up to three and you’ll be asked to make repayments during this time.

It is much more difficult to get credit after bankruptcy and your credit rating will be affected by up to 6 years.

You could lose your house, possessions and some proffesions won’t let you work if you’ve been made bankrupt.

If you own a business it could be sold and the details of your bankruptcy will be published publically.

You have to pay a £680 fee to go bankrupt.





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