If you’re a UK resident struggling with debt, you might be interested to learn about the various debt management solutions available to you. People often feel stuck when they’re burdened with a large amount of debt and not enough income to cover it, but luckily, solutions exist to solve such problems.
Depending on your situation, you could benefit from one debt solution over another, and knowing about the various options can help you decide. In this article, we explore the various debt management solutions available to UK residents and discuss the requirements and criteria for each.
That’s not the solution you were hoping for is it? Don’t worry, bankruptcy is usually only a last-resort option for most people, as it can take a toll on you financially and burden you with a lot of restrictions.
Applying for bankruptcy costs £680 at the time of writing, and it can also cause you to lose assets. The restrictions are also relatively severe, whilst bankrupt you can’t:
- Borrow more than £500 without telling the lender you’re bankrupt
- Act as a director of a company without the court’s permission
- Create, manage or promote a company without the court’s permission
- Manage a business with a different name without telling people you do business with that you’re bankrupt
- Work as an insolvency practitioner
IVA (Individual Voluntary Arrangement)
IVAs are usually the best way to get yourself out of debt, if you qualify.
First, an insolvency specialist will evaluate your financial position, then if you qualify for the arrangement and can meet its terms, the specialist speaks to your creditors and negotiates a deal.
Usually they involve you paying off a percentage of your debt over a 5 or 6 year period, after which the remaining balance is scrapped.
This is one of the primary ways heavily indebted people avoid filing for bankruptcy. IVAs do take a toll on your credit score, but not nearly as much as bankruptcy.
The main benefits of IVAs are that the interest that is accruing on your debts freezes the minute the IVA is activated and creditors may wipe up to 90% of your debt.
Speak to an IVA adviser today to find out who qualifies for an IVA.
DRO (Debt relief order)
Debt relief orders are a slightly more drastic measure and are suitable for people who do not meet the criteria for an IVA.
IVAs are a better option if you have the ability to repay your debts, but a DRO might be suitable if not.
You may be able to apply for a DRO if the following apply:
- You cannot repay debts
- Debts don’t exceed £30,00
- You have less than £75 spare income each month
- You’re not a homeowner
- The sum of your assets is less than £2000
- You haven’t had a DRO in the last 6 years and are not currently applying for another insolvency procedure, like an IVA
- You were a resident in England, Wales or Northern Ireland in the last 3 years