If you have less than £5,000 in unsecured debt and at least one existing court judgement you may apply to your local county court for an administration order.
An administration order is a repayment plan arranged by the court. There is no fee, your creditors can’t contact you for payment nor can they add any further interest to your debt.
You pay the court a single monthly payment, which is calculated after taking account essential living expenses, and the court distribute it to your creditors.
Some banks and financial institutions offer debt consolidation loans. This allows you to take out one larger loan to pay off all your debts.
You are left with one single, more manageable, repayment per month rather than many and you may be able to spread your repayments over a longer of period of time.
Always seek independent advice before doing this as you are borrowing to pay of borrowings which is not always the best solution and, if you secure the loan against your house, your home may be at risk if you do not make the repayments.
Debt relief order (DRO)
A debt relief order (DRO) is a low cost alternative to bankruptcy designed for people with low income and a relatively low amount of debt.
You can apply for a DRO if you owe less than £15,000 in unsecured loans, are not a homeowner. Have no more than £300 in assets and have less than £50 a month left over after living expenses.
If you are accepted for a DRO, then all your debts will be on hold for a period of twelve months during which time your creditors cannot contact you for any repayments. If after twelve months, your financial situation has not improved, all of your debts will be written off.
The fee for a DRO is £90.
Debt management plan (DMP)
A debt management plan is a means of reducing your monthly repayments to an amount that you can afford and is usually administered by a third party for you so that you don’t have to deal with your creditors directly.
The service can be obtained from debt management company’s such as Think Banking who charge a fee and also from debt charities such as Step change who do not charge a fee.
You provide a reasonable budget of what your income is, your living expenses including rent or mortgage and what is left over for your creditors. The debt management organisation will then contact all of your creditors with an offer of an affordable repayment amount. If your creditors accept the offer, which if given your circumstances is reasonable they will, you will then pay the debt management organisation one single amount and they will distribute amongst your creditors.
Individual voluntary arrangement (IVA)
(England, Wales and Northern Ireland)
The legally binding alternative to a debt management plan is an Individual Voluntary Arrangement (IVA).
An IVA, has to be administered by a qualified Insolvency Practitioner (IP), a specialist type of accountant. Like a debt management plan, a reasonable budget will be drawn up and agreed and a monthly, affordable payment made to the IP who will distribute it amongst your creditors.
Interest will be frozen and your creditors cannot contact you for money or take any further action.
The IP will charge you a fee for the service and the other potential downside is that there will be a creditors meeting which you will have to attend. However, most creditors will not turn up.
The main difference between an IVA and a DMP is that the IVA is legally binding whereas the DMP is a more informal agreement between your creditors and yourself.
(England, Northern Ireland, Wales)
If your unsecured debts significantly outweigh your assets and you have no reasonable expectation of being able to pay off your debts in a reasonable amount of time, you can apply for bankruptcy.
Your bankruptcy will be administered by an official receiver who will assess your assets and debts. Any valuable assets, excluding what you need for day to day living will be sold and any excess funds that you may have will be used to pay your creditors but bankruptcy only lasts for one year after which all of your unsecured debts will be written off.
The irony is that there is a fee to go bankrupt. At the time of writing this fee is a total of £700 or if you are on benefits or a low income this fee may be reduced to £525.
Bankruptcy, whilst not the big deal that it perhaps used to be, is still a very big step and advice should always be sought first. If you own your own home, this may be sold as well as any other significant assets.
Debt solutions and the fees applicable vary between England and Wales, Scotland and Northern Ireland. Solutions and fees quoted here are based upon those available in England and Wales. For full details of available solutions can be found on the web site of the debt Charity, Step Change: