Comparison of Debt Solutions

Still confused? We’ve got a comparison of solutions that may potentially help you. This details some of the key points and considerations that you’ll need to think about before you decide about what’s right for you. While this is a basic guide the information featured is not an exhaustive list of the benefits and considerations of each product.

We would always recommend seeking financial advice from a licensed and regulated company. The Money Advice Service is an impartial service set up by the Government. They provide free debt counselling, debt adjustment and credit information services. Visit Money Advice Service

  • Individual Voluntary Arrangement (IVA)
    How it helps

    Writes off a proportion of debts
    Upon successful completion of the IVA, any remaining debts included within the arrangement will be written off.

    Creditor contact significantly reduced
    Creditors should only send yearly statements and notification of any business changes once they have been notified of acceptance of the IVA.

    Interest and charges are frozen
    Once your IVA has been accepted creditor interest and charges are frozen and creditors are unable to take legal action.

    HRMC & VAT
    Unsecured debts owed to HMRC may be included within an IVA

    What you need to consider

    Savings and windfalls
    You are required to release all savings and/or windfalls (such as inheritance, lottery win) for the benefit of creditors.

    Formal insolvency
    An IVA is a formal insolvency. You may withdraw any time prior to approval, however once accepted you and your creditors are bound by the terms of the arrangement.

    Credit rating
    Entering into an IVA may adversely affect your credit rating.

    Homeowners may be required to release equity
    In the final year of an IVA you may be required to release a proportion of equity in your home through a re-mortgage. If it is not possible to obtain a remortgage the arrangement may be extended by up to 12 months.

    Details of your IVA are made public.
    Details of your IVA are held on a public register.

    You will be required to make payment
    You will be required to make payments to your IVA, typically for a period of five years.

    Conditions

    In order to qualify for an IVA you must owe unsecured debts of £5,000 or more.

    You must have two or more creditors.

    You must be able to afford a minimum payment of £70 per month.

    Fees apply.

  • Debt Management Plan (DMP)
    How it helps

    Affordability
    We look at your income and expenditure then negotiate with creditors to make sure your future payments will be affordable.

    Payment schedule to suit you
    This can be monthly, weekly or fortnightly.

    Possibility of interest and charges being frozen
    We negotiate to freeze charges and interest. This is down to the creditor to decide and is not guaranteed for all instances.

    What you need to consider

    Affect to your credit score
    Entering into a plan can have an adverse impact on your credit rating.

    Your repayment schedule may increase
    Your repayment term could increase over a longer period if you enter into a DMP. The result being you could pay back more than you originally owe.

    Creditors may not accept a DMP proposal
    Creditors aren’t obliged to accept a DMP proposal.  As a result they can still chase payment.

    Debts that don’t qualify
    You will still have to make payments on the debts which don’t qualify for this solution.

    Conditions

    Only unsecured debts can be included, though some exclusions apply such as CCJ’s.

    A DMP managed through Harrington Brooks requires customers to afford a minimum payment of £80 per month towards their debts.

    The minimum debt level required is £1000 with a minimum repayment term of 12 months.

    The total debt managed through a DMP will need to be paid off. None of the debt will be written off.

    Fees apply.

  • Bankruptcy
    How it helps

    Writes off a proportion of debts
    Once you have been declared bankrupt any debts included within the bankruptcy will be written off. You may be required to make payments to the bankruptcy for up to 3 years.

    Creditor contact stops
    Eligible creditors will no longer contact you once you have been declared bankrupt.

    What you need to consider

    Savings and windfalls
    You are required to release all savings and/or windfalls (such as inheritance, lottery win) for the benefit of creditors.

    Homeowners may be required to sell property
    Should there be a reasonable amount of equity available you may be required to sell the property for the benefit of creditors.

    Credit rating
    Bankruptcy will adversely affect your credit rating for a period of at least six years.

    Details of bankruptcy are made public
    Details of your bankruptcy are held on a public register.

    May affect employment
    Some financial providers and employers may not employ individuals who are bankrupt.

    May affect public positions
    You cannot act as a director of a limited company, school governor or Member of Parliament.

    You may be required to make payments
    You may be subject to an Income Payments Order. This requires you to make payments to your bankruptcy for a period up to three years.

    Some debts cannot be included in bankruptcy
    There are some types of debts that cannot be included and you will therefore be required to make payments to those outside the bankruptcy. E.G social fund loans, some student loans, secured debts.

    Conditions

    In order to petition for your own bankruptcy you must owe unsecured debts of £750 or more.

    Fees apply
    If you wish to petition for your own bankruptcy there is a fee of £550 (from 21st July 2016) payable to the Official Receiver, plus an adjudicator fee of £130. If a creditor petitions for your bankruptcy, they will pay the costs.

  • Debt Relief Order (DRO)
    How it helps

    Debts written off
    After 12 months all debts included within the DRO will be written off.

    Creditor contact stops
    Eligible creditors are unable to contact you in the 12 months following successful application for a DRO.

    Repayments towards debts stop
    You will not be required to make payments towards the DRO, other than the application fee.

    N.B Please note that if you no longer qualify for a DRO during the 12 month period following application  due to change in circumstance, it may be revoked.

    What you need to consider

    Excludes homeowners
    Homeowners do not qualify for a DRO.

    Details of a DRO are made public
    Details of your DRO are held on a public register.

    May affect employment
    Some financial providers and employers may not employ individuals who are subject to a DRO.

    Some debts cannot be included in DRO
    There are some types of debts that cannot be included and you will therefore be required to make payments to those outside the DRO. E.G social fund loans, some student loans, secured debts.

    Conditions

    In order to qualify for a DRO your unsecured debt level must not exceed £20,000

    Fees apply – You will need to pay the Insolvency Service a one off fee of £90

    Your monthly disposable income must not exceed £50.

  • Debt Consolidation
    How it helps

    Affordability

    Debt consolidation can reduce your monthly repayment so it’s more affordable for you after you’ve covered your other financial commitments.

    Easier to manage

    You’ll only have one monthly payment to make for the debts that are included in the debt consolidation, so it’s easier to keep track of your repayments.

    Less of an effect on credit rating

    Debt consolidation doesn’t have a negative effect on your credit rating like other debt solutions do.

    What you need to consider

    Could repay more

    Depending on the length of your debt consolidation and the interest rate, you could end up paying back more in total.

    Might extend your repayment schedule

    Making smaller monthly repayments could mean that you’ll be repaying for a longer period.

    Your home could be at risk

    If you take out a secured debt consolidation loan, your property could be at risk of repossession if you don’t keep up with your repayments.

    Conditions

    Each lender will have their own set of criteria whether they’ll accept you for a debt consolidation loan.

    Some lenders might be more likely to reject you or to accept you for borrowing at a higher interest rate if you’ve previously struggled making repayments.

    You can only get a secured debt consolidation loan if you’re a homeowner. If you don’t own your own home, you’ll only be able to apply for unsecured debt consolidation.

  • Protected Trust Deed (PTD)
    How it helps

    Legally binding arrangement

    A Protected Trust Deed (PTD) is a legally binding arrangement between you and your creditors, usually lasting four years.

    An Insolvency Practitioner will help you

    A PTD must be arranged by a licensed Insolvency Practitioner (IP). The IP will help you work out an affordable repayment and make a proposal to your creditors. Once the PTD is approved by your creditors the IP will become your Trustee and oversee your PTD for the 4 years.

    Shared payment for your creditors

    You will be required to make payments for 4 years (this may vary). Creditors will receive a percentage of the payments made into the PTD.

    Debts written off following completion

    Upon successful completion of the PTD, any debts included within the PTD will be written off.

    What you need to consider

    Credit rating will be affected

    A PTD may remain on your credit file for up to six years after your Trust Deed becomes protected (approved). This may make it harder for you to get credit, even after your PTD has completed.

    Some debts cannot be included

    There are some types of debts that cannot be included in a Trust Deed and you will be required to make payments to those outside the PTD. E.g. student loans, magistrate court fines, criminal fines and social fund loans.

    Your job might be affected

    You cannot be a director of a company or hold public office whilst subject to a PTD, and some other roles in the financial or legal sectors may also be affected. It’s best to check with your HR department at work, or a union representative to ask if a PTD may affect your job prior to making a PTD application.

    Conditions

    In order to qualify for a PTD you must owe at least £5,000 (in total) and have debts with two or more creditors.

    A PTD is only available for Scottish residents. If you live in England or Wales, there are other products available.

    When you start a PTD, your Trustee will charge fees for this. These fees include an Initial Trustee fee (for work completed prior to the PTD being protected) and a realisation fee (a percentage of the total amount paid into the PTD). There are other costs, including registration fees and insurances charged, known as disbursements. These fees will be deducted from your PTD payments.

  • Debt Arrangement Scheme (DAS)
    How it helps

    Affordability

    How much you’ll pay every month into your solution depends on your individual financial situation. You won’t ever pay more than you can afford after your bills and expenses have been covered.

    Legally binding on creditors

    Your creditors can’t take any further action against you during the DAS, as long as you comply with its conditions.

    Freezes interest and charges

    All interest and charges on your debts will be frozen during the DAS once it’s agreed – this will help you clear what you owe quicker.

    What you need to consider

    Could repay for longer

    If you reduce what you’re paying every month, it could mean your repayment schedule increases. This means you could be in debt for longer but you won’t repay more than you owe.

    Can affect your credit rating

    Details of your Debt Payment Programme (DPP) under DAS will appear on your credit report for at least six years. This could mean that creditors might be more likely to reject your applications for credit or only offer credit agreements at a higher interest rate.

    DAS can fail

    If you don’t stick to the DAS rules, it can fail. Creditors can start chasing you again and add interest and charges back onto your debts.

    Conditions

    You must be a Scottish resident to qualify for DAS – you can’t live in England, Wales or Northern Ireland.

    The total debt managed through a DAS will be paid off – it won’t write off any of your debt.

    You’ll need to have some disposable income to pay towards your debts every month after you’ve covered your important bills and other expenses.

    Some set-up costs may apply, depending on the company that sets up your DAS. Your payment distribution fees will be covered by your creditors though.

  • Sequestration
    How it helps

    Can clear your debts in 12 months

    With sequestration, you can usually clear your unsecured debts in 12 months. However, you could have to pay into your sequestration for four years.

    Writes off some of your debts

    After your sequestration, any debts you owe will legally be written off.

    Legally binding to creditors

    Sequestration will stop creditors from contacting you. They’ll also have to freeze all interest and charges on debts included in your sequestration.

    What you need to consider

    Might have to sell assets or release equity

    If you’re a homeowner, you might have to release some equity or sell your property, and pay this into your sequestration. You might also have to sell some of your other assets too, such as your car.

    Appears on a public register

    Your sequestration will appear on the publicly available Register of Insolvencies for five years. Credit reference agencies will also record details of your sequestration for at least six years.

    Could affect jobs

    Sequestration can affect some jobs, including some jobs in the legal and financial sectors. Check your contract to be sure whether sequestration affects your job or not.

    Conditions

    Sequestration is only for Scottish residents – you won’t be able to apply if you live in England, Wales or Northern Ireland.

    You must owe at least £3,000 in unsecured debts to qualify.

    Fees apply – you’ll have to pay fees of £200 to the Accountant in Bankruptcy before your sequestration can start.

  • Minimal Asset Process (MAP)
    How it helps

    Writes debts off

    Normally after six months, all debt included in your MAP will be written off.

    Stops creditor contact

    Once your MAP is approved, it’s a legally binding solution so your creditors won’t be able to contact you. They’ll also have to freeze your interest and charges.

    No payments towards debts

    During the MAP, you won’t have to pay anything towards your debts included in the debt solution.

    What you need to consider

    Seriously affects credit rating

    MAP will have a serious effect on your credit history for at least six years.

    Appears on a public register

    Details of your MAP will appear on the publicly available Register of Insolvencies for five years.

    Could affect jobs

    MAP bankruptcy can affect some jobs, including some in the legal or financial sectors, meaning you could go through disciplinary action or even be dismissed.

    Conditions

    You must be a Scottish resident to qualify for MAP – you can’t apply if you live in England, Wales or Northern Ireland.

    You can’t own a property or have assets worth more than £2,000 in total, and no single item can be worth over £1,000.

    After you’ve paid your important bills and other essential living costs, you must have no money left over, or your income must come entirely from benefits.

    You must owe between £1,500 and £17,000 in unsecured debts.

    Fees apply – you’ll need to pay the Accountant in Bankruptcy a one-off fee of £90 before your MAP can start.

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