To improve the financial conditions of people, the Government introduced debt help plans allowing you to solve your debt problems and live a stress free life. You can feel assured about these government schemes as they are safe, legal and supportive. Many people apply for these schemes as it offers you to get rid of increasing financial burden. Life becomes tough with burden on your shoulders and creditors waiting outside your house for payments. You lose peace of mind, happiness, and your confidence feels shattered being unable to pay your debts and take care of your family. Losing hope is not a good solution. You have to rise and look forward positively towards debt arrangement schemes that take you out from the well of debt.
If you are a resident of England or Wales or Northern Ireland, you can seek for various debt alternatives. Individual Voluntary Agreement also known as IVAs are covered under Insolvency Act, 1986. IVA schemes are government supported schemes as an alternative to bankruptcy. There are several other debt solutions such as debt management plan, debt relief order, administration order, bankruptcy, Debt arrangement schemes (DAS), trust deed and bankruptcy.
Let’s see what debt management plans are and how they give you an option to be relieved from debt.
Administration order- It is a secured debt solution where you can contribute to the court as much as you can afford. Thereafter, the court on your behalf distributes to your creditors. Firstly, you need to check your eligibility for this relief. You can be eligible for the administration order if your unsecured debt amounts to less than 5,000 pounds. One order of the court should be against you to be eligible for the administration order. As soon as the administration order is enforced, the charges and interest on the debt stops accumulating and are frozen. If your situation is really bad where you are unable to repay the full debt in a reasonable time period, the court has to decide a date after which the residual debt would be written off. It is an effective solution by which you can avoid bankruptcy and live life freely after repaying the debt by making monthly affordable payments.
Debt relief order- Debt relief order is for people who have quite a low income and low value assets. It is very similar to bankruptcy where you do not have to pay any contribution to the creditors. To qualify for such a solution, there are certain eligibility parameters. The parameters are-
- You do not own a home
- You own unsecured debt amounting to less than 15,000 pounds
- If you have a car, it must be less than 1,000 pounds
- Other assets except car and home should be less than 300 pounds
- After settling all essential outstanding payments and bills, your disposable income must be less than 50 pounds.
If you qualify with these parameters, you can apply for DRO. Under DRO, the increasing interests and charges are frozen. Your financial condition is monitored for a year where it is assessed that if your condition has not improved still, your financial debt would be written off. You are entitled to pay fees of 90 pounds to the Insolvency Service.
Bankruptcy- Bankruptcy is considered to be a last resort. When a debtor is not left with any debt solution, bankruptcy is chosen as the last option. For being eligible, your unsecured debts have to be more than your assets. As easy as it sounds, it is not really that easy. It is highly recommended avoiding such a situation where you are declared bankrupt. It indicates a fresh start for a person as soon as the unsecured debt is written off. Your assets may be utilized to repay your debts, but that entirely depends upon the situation. After a year’s time, your financial circumstances are assessed and finally your debts are written off. You can file a self petition for Bankruptcy as it is a government backed scheme under Part IX of Insolvency Act 1986. It is obvious that you have to face high levels of stress during this phase but you have to control yourself and stay positive.
Why do we fear from the word Bankruptcy? It is because it has some major drawbacks that frighten us.
Close bank accounts- There may be situations where you are supposed to close your bank account or society account. Your option to open an account in future also becomes doubtful because of the stringent norms of the banks.
Credit rating drops- Even if your bankruptcy period comes to an end, credit rating agencies maintain the information about your bankruptcy with them.
Employment problems- You have to check the terms and conditions of your job as it changes for a bankrupt person.
No credit- you will not get credit anymore when you have been declared bankrupt. As your credit worthiness has been adversely affected, it would be difficult for you to get credit from any institution.
Under an IVA, your credit rating is not damaged to an extent of bankruptcy. It is easier to live life under an IVA that allows repaying your debt slowly. There is respect and motivation in IVA which we cannot get from bankruptcy. The major benefit of IVA over bankruptcy is that your professional status remains unaffected. Your job is secured even if IVA is in process along with your job. It provides you a sense of security, happiness, and flexibility to pay and protect your assets from the creditors. IVA does not blacklist you from applying and seeking credit in the future. IVA is enforceable by law and protects the esteem of the debtor. As a debtor, the warning letters and calls take you to a higher level of frustration and dejection. Hence, IVA provides you a chance again to improve your credit ratings, secure further credit and live life respectfully. It helps you to dream for a day after five years when you would be debt free. Need more info? – What is an IVA?