How to Get Out of Debt? - Debt Help & Advice | Money Advisor
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Here at Money Advisor, two of the most common questions our professional debt advisors get is ‘how can I get out of debt?’ and ‘can I write off my debt?’. The short answer is yes, there are multiple debt solutions and plans available to borrowers who are struggling with their finances or finding it hard to keep up with repayment terms and we’ll be covering them in this article.

Overview

Borrowers who are struggling with debt repayment in the UK have access to many debt solutions that can help them regain financial control and, in some cases, even write-off significant portions of their debt.

But to do this, you first need to make sure that you’re picking a debt plan that works best for you. Since there’s no such thing as a formula debt solution that works for everyone, you need to pick a solution according to your circumstances, debt level, disposable income, and assets.

Remember, the best way to deal with debt is to take charge of the situation and set up a plan for yourself. Do not be discouraged if you’re having difficulty deciding which solution will work out for you – you can always seek help from an impartial debt advisor.

Before talking to a debt advisor, you should acquaint yourself with all your options so you can work with your advisor to weigh them up and pick the one that fits your needs and requirements perfectly.

Here are some main debt solutions that help borrowers write off their debts or repay them in the form of manageable installments:

An Individual voluntary arrangement (IVA) that is set up by an insolvency practitioner – IVAs are common in the UK where they have helped some borrowers write off staggering amounts (up to 90%) of debt.

An Administration Order that works only for borrowers who have had a County Court judgment (CCJ) or a High Court Judgement (HCJ) against them for inability to pay debts under £5000

A Debt Management Plan (DMP)  is an informal agreement between borrowers and their creditors. In select cases, DMPs help people get out of debt by making repayment more affordable and manageable.

A Debt Relief Order  if you can’t repay your debt because you don’t have enough money or assets.

You also have other options. If you’re finding it hard to repay your debt and you have minimal possessions and money, you can apply for a formal insolvency solution like bankruptcy. You may even be able to renegotiate with your creditors and reach an informal agreement.

Moreover, it’s important to note that some of these debt solutions (e-g bankruptcy and debt relief orders) are available to residents of England and Wales only. Borrowers in Scotland can avail the Debt Arrangement Scheme  (DAS) to set up the Debt Payment Plans (DPP) or apply for Sequestration.

Now, let’s look at each of these frequently used debt solutions in detail:

 

 

Individual Voluntary Arrangements (IVAs)

An individual voluntary arrangement (IVA) is a formal & legal agreement, between you and your creditors, that agrees on a monthly repayment plan over a period that condenses multiple debts into one monthly payment.

When setting up an IVA, you agree with your creditors to pay all or part of your debt in the form of affordable monthly installments that are determined by your insolvency practitioner. Your IP then gets in touch with people you owe money to. An IVA is in effect when a majority (75%) of your creditors agree to it, the rest of them are also bound to follow suit.

Since an IVA is a legal insolvency solution, it stops your creditors from taking any action against you. You are legally protected and that means your creditors cannot secure court orders against you.

IVA Costs

IVAs are a relatively affordable debt solution but there are still some costs involved, like your IP fee.  However, as long as your IVA is in place, you will not have to pay extra to cover fees and additional charges.

You will not be affected by any such charges. That’s because IP fees are included in the sum you pay every month as a part of your individual voluntary arrangement – your creditors are effectively agreeing to accept less money so you can pay your insolvency practitioner.

The only exceptions to this rule are situations involving IVA cancellation or a significant windfall. In such circumstances, your creditors may demand that you contribute a fixed amount (on top of your debt) to IP fees.

Responsibilities

You only need to keep up with your repayment schedule. If your income declines or your expenses increase, and you find it difficult to make repayments, you need to talk to your IP.

Public Records

Your IVA will be included in the IVA register but it will be removed 3 months after your IVA term expires.

 

Administration Orders

An administration order may help you manage debt repayment if you have debts of less than £5,000 and a county court or High Court judgment against you and you cannot make full repayment.

Once an administration order has been arranged, you only have to make 1 monthly payment to your local court, which then divided the sum between all your creditors.

After you fill out an application, submit it to your local court, and secure an administration order, creditors listed on the order cannot take legal action against you.

Administration Order Costs

You have to pay a fixed court fee every time you make a payment. This cannot be more than 10 percent of your total debt. The court fees cannot exceed £500.

Eligibility Criteria

To secure an administration order, you must:

  • Owe less than £5000 (including interest and charges)
  • Owe to at least 2 creditors
  • Prove that you cannot afford to make repayments, by giving details of your income
  • Have a county court or High Court judgment against you

 

Responsibilities

If you’re entering an administration order, you need to repay your debt on time. If you cannot keep up, the court may:

  • Issue an ‘attachment of earnings order’ to ask your employer to deduct money from your salary
  • Cancel the order altogether

However, you may still be able to keep your business operational.

Public Records

Details of your administration order are entered into the Register of Judgements, Orders, and Fines. The entry is removed usually 6 years after the order was issued and marked ‘satisfied’. You can also apply for a ‘certificate of satisfaction’ by writing to the court and sending a cheque of £15.

 

Debt Management Plans

Debt Management Plan (DMP) is an agreement that is made between you and your creditors to help control and pay all your debts. DMPs reduce your monthly payments and consolidate them into a single amount.

DMPs are not legally binding. Before you make a decision, its vital to ensure that DMPs are the right debt solution for you. That’s because DMPs can be an expensive option for some people and they don’t help borrowers write off debt or get out of it entirely. But they can make some borrowers regain control of their finances.

DMPs work only if:

  • You can only afford to pay your creditors a small amount every month
  • You presently have debt issues but will be able to repay in a few months

You can arrange a DMP yourself or through a licensed debt management company. If you arrange it through a company, you may have to:

  • Make regular payments to the company
  • The company then shares the amount with your creditors

Debt Management Plan Costs

Cost for a DMP include:

  • A setup fee paid to the debt company
  • A handling fee each time you make a monthly payment

*DMPs may involve extra fees so make sure that you fully understand the costs associated with it and plan ahead.

Eligibility Criteria:

DMPs can only be used for ‘unsecured loans’ and ‘priority debts’

Responsibilities

Your plan can be cancelled if you are unable to make repayments.

Public Records

Since a DMP is not legally binding and more of an informal solution, it won’t be entered into any public registers.

 

Debt Relief Orders

A debt relief order (DRO) is a form of insolvency for people who do not have much in the way of disposable income and have been unable to pay off relatively low-level debts. After a DRO is approved and completed, all your debts are written off.

Debt relief orders only work for borrowers who:

  • Owe less than £20,000
  • Do not have spare income
  • Do not own their home

If a debt relief order works out for you, you will:

  • Be discharged from your debts after 12 months
  • Your creditors cannot recover the money without court permission

DRO Costs

The Official Receiver’s fee is £90. You may be able to get help from charities with this cost.

Eligibility Criteria

You need to meet all of the following terms to apply for a DRO:

  • Owe less than £20,000
  • Spare monthly income of less than £50
  • Less than £1000 of assets
  • Lived or worked in England or Wales in the last 3 years
  • Not applied for DRO in last 6 years

Responsibilities

There are some rules called ‘restrictions’ that you have to follow if your DRO gets approved. These restrictions mean you cannot:

  • Borrow more than £500 without telling your lender
  • Act as a director of a business
  • Create, manage or promote a company without a court’s permission
  • Manage a business without telling those you do business with about it

If you want to open a bank account, you may have to tell your bank about the DRO. These restrictions last 12 months and if you don’t comply with the terms of the DRO or the rules, they may get extended. The official receiver will inform you if they have been extended.

It’s important to note that you will still have some responsibilities after your DRO is in effect. You will still have to:

  • Pay your rent and bills
  • Pay some debts like student loans or fines

DROs can be cancelled if:

  • Your finances improve
  • You don’t coordinate with the official receiver

Since DRO has fees and rules involved, it is always better to talk to get help from a professional debt expert. They can offer debt advice and tell you whether a DRO will be the best option for you.

Public Records

Your DRO will be included in the Public Insolvency Register and removed 3 months after your DRO ends. It will stay on your record for 6 years.

Get Debt Help and Advice

Money Advisor has helped hundreds of borrowers write off debt and become debt-free. If you need debt help or advice, get in touch with us now and we will help you get back on track.

If you have debts of over £5,000, and you're struggling to repay them, get in touch today!

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