Is an IVA my only option?
Not all debt is bad, but it becomes bad when you cannot afford to keep up repayments to your creditors. In some cases this is where the level of debt is very high, but not always. There are many who only owe very small amounts of debt but still can’t afford their existing credit commitments.
It is important that you always seek professional advice. There are a number of rogue companies out there who would gladly help you get into more and more debt!
- IVA:
If you qualify for an IVA, it is invariably your best solution, as it means you avoid bankruptcy and will write off a substantial proportion of your existing debt. Every other solution (except bankruptcy) will increase your debt and the duration of your repayments.
An IVA means you would only pay one affordable monthly payment, all interest and charges would be stopped, your creditors would stop chasing you and at the end of your IVA, all outstanding unsecured debt is written off. As a homeowner, your IVA could protect your home from your creditors and bankruptcy proceedings.
- Unsecured Lending:
Obtaining an unsecured loan at a sensible interest rate is always difficult if you have been refused in the past or are struggling financially.
Chances are that if you have already explored borrowing from your bank or building society or increasing the limits on your cards, then the truth is that you probably don’t need to borrow any more money, but rather you need to make your existing debts more affordable.
- Secured Lending for Homeowners:
Consolidating your unsecured debts into one affordable secured payment may be an option. If you have more equity in your home than unsecured debts, it may be possible to qualify for a secured loan, consolidation loan or a re-mortgage. Providing that you can afford additional borrowings, this could be a good option.
Make sure that you never secure your unsecured debts on your home if you think you may struggle to make repayments because you are putting your home at serious risk. Seek expert help to determine whether you can afford the repayments and please remember that the salesperson might not have your best interest at heart, but is thinking of the commission that they will earn from your loan!
- Debt Management (Homeowners and Tenants):
A Debt Management plan allows you to pay one low monthly payment to your creditors. If you qualify for an IVA you should explore that option first before accepting a debt management plan. As this plan does not offer you any legal protection from your creditors, and does not automatically freeze interest and charges. The plan will continue until you have paid off all your debts, and does not allow you to write any amounts off.
Debt Management is an informal agreement between you and your creditors. The Debt Management Company offers your creditors a reduced monthly payment and charges you a monthly management fee, typically below 20%.
A debt management plan is not really a debt solution, as it does not solve your debt problem. It allows you to manage debts thereby reducing creditor pressure and giving you peace of mind. But creditors are not legally bound by them and can still take recovery action.
- Bankruptcy:
Bankruptcy is a final option, only to be considered when all options have been fully exhausted. Only take expert advice from a Licensed Insolvency Practitioner if you wish to declare yourself bankrupt.
Entering into an IVA may adversely affect your
credit rating for up to six years from the date of approval.
Your property will be protected within an
IVA but you may be required to release all or part of any equity during the
period of the arrangement.
Failure to complete the term of an IVA can
result in bankruptcy.
(In Scotland, a PTD is the equivalent to an IVA.)