First Check if you owe the money!

Before going into a Government scheme to wipe debt, it is worth checking if you actually owe the debt. Many debts are sold on from the original creditor and because they skip the legal paperwork, they are no longer enforceable. Use the Three Letter Process if your debt has been sold on to a Debt Buyer.

If your debt is still with the Original Creditor, Single Letter them to see if they actually have PROOF that the debt is owed. In many cases, the company has not kept the original paperwork and cannot legally prove the debt it owed. Give it a go!

Also if any of the debts are over 6 years old and not been paid in that time, they may be Statute Barred, meaning no longer enforceable through the courts. Send the Statute barred letter if you are sure that no payments have been made in 6 years.

IVA's, DRO's and DMP,s are Government Schemes

The Government has created these schemes to assist people that get into debt. The IVA being possibly the worst because it ties you into paying for the next 5 to 6 years! A DRO like Bankruptcy if over in 12 months so can be a useful way to get rid of debts in a short time. But these schemes were designed to the system to get you complying with the system and not realising how we have all been conned into complying with a system that is implementing modern day slavery on us all. The government by implementing these schemes is acting in one hand like the benevolent Government whilst putting the thumb screws on us in the form over Taxation and Corporate billing for services that should cost very little, if anything at all.

The simple truth of the matter is that Bank's print money out of thing air! What you are paying back is something that was never actually borrowed in the first place. The money was created when you signed the agreement. The banking system that the banks operate under is called "Fractional Reserve Banking" and is a huge scam. So don't be too concerned about paying back money that you never actually "borrowed"!

IVA: the pros and cons of Individual Voluntary Arrangements

The pros of an IVA

• Legally binding on your creditors: Your creditors can no longer take any further legal action against you; they also cannot contact you either by post or phone. If approved the creditors have to abide by the IVA as agreed. This includes writing off a percentage of your debt.

• A time frame of 5 or 6 years: Most IVAs have a time frame of 5 or 6 years, however this may be extended by 12 months if you have equity in your property which you cannot release for the benefit of creditors.

• You’re not forced to sell your own home: In an IVA you would not be forced to sell your home but you would be expected to attempt to re-mortgage your property 6 months before the IVA ends.

• You can keep certain assets: In an IVA it is possible that you can retain assets such as vehicles. Extra IVA payments may also be offered in place of retaining other assets and your creditors will decide if they agree to this.

• You pay something back: Our clients often don’t want to go down the bankruptcy route as they realise that their creditors in most cases won’t see any return on the money borrowed. In an IVA you would offer to repay a percentage of the debt owed to your creditors, showing you have made your best efforts to repay as much as you can.

• Affordable payments: You will make an affordable monthly payment that takes into account all essential payments in your budget.

• Adaptable if things change during the term of the IVA: 5 or 6 years is a long time and during this time there may be a number of changes in your circumstances. IVAs can be really flexible and if required you will be able to vary the terms of the IVA with the agreement of your creditors.

• You have support: A licensed Insolvency Practitioner will guide you through the process, their support and experience should act as a reassurance through the course of the IVA.

The cons of an IVA

If you read a lot of the advertising surrounding IVAs you wouldn’t believe there are any cons, however…

• An IVA can be strict: You will be asked to stick to a budget for 5 or possibly 6 years and this will be complemented with a review off your income and expenditure every 12 months to make sure that the payments continue to be affordable.

• An IVA could affect your job: An IVA is a form of insolvency and could affect some professions; you would need to check the terms and conditions of your employment.

• Rejection and failure: Creditors could reject the proposal outright or the IVA could fail at anytime due to a significant change in your circumstances that mean you are unable to pay.

• Criteria: As we said, an IVA is not for everyone so you need to take advice to ensure that this is the best solution for you. This can even be dependent on who your majority creditors are, and their attitude towards IVAs.

• Credit score: An IVA will stay on your credit file for 6 years from the day it starts. You won’t be allowed credit above £500 for the duration of your IVA and it may be difficult to gain any credit until the IVA has cleared from your credit file.

• An IVA is a long term commitment: 5 or possibly 6 years is a longer time frame than bankruptcy. People going bankrupt will be discharged after just 12 months and have to pay contributions for 3 years. An IVA is a legally binding agreement for both you and the creditors which may contain legal sanctions to make sure you stick to the contract.

• Public record: An IVA is a form of insolvency so is listed on the Insolvency Service website. This database can be searched by anyone.

• Fees: All IVA firms have to charge a Nominee and Supervisory fee; this is taken from payments you make into the IVA and is not an additional cost to you. Some IVA firms charge an upfront fee for the drafting of an IVA proposal. Always make sure you take free and impartial advice.

• Bankruptcy: If your IVA does fail there is a risk of bankruptcy proceedings.

• You may need to re-mortgage your home: Although you won’t be forced to sell your property with an IVA you would be expected to try and re-mortgage in the last 6 months of the IVA. If this isn’t possible the IVA would be extended from 5 to 6 years. If you were successful in re-mortgaging then it’s likely that it would be at a higher interest rate.

• Other debts: Only debts that were included in the original IVA would be discharged at the end of the IVA, so if you had taken out any further debts these wouldn’t be included and you’d still have to repay these.

Always remember to always take free and impartial advice before entering into an IVA.

Debt Relief Order – Pros + Cons

A DRO is a legal procedure administered without court involvement by the Insolvency Service. An application for a DRO must be made through an approved DRO intermediary. If you would like any more information on a DRO we recommend you visit https://www.gov.uk/government/organisations/insolvency-service

Pros

 The fee to enter into a DRO is relatively low at £90 and can be paid in monthly installments. However, your DRO cannot begin until the £90 has been paid.

 You will be discharged from all of the debts included in the DRO after a 12 month period.

 You will not be required to make any payment into the DRO beyond the initial £90 fee.

 You do not need to go to court to apply for a DRO.

 Creditor contact relating to debts included in the DRO will stop once the order has been made. Until such time if you currently have any recovery or legal action this may not be suspended or withdrawn. If legal action starts to recover debts prior to the commencement of the order this may result in further cost to you.

 Outstanding personal tax liabilities can be included in a DRO.

Things to consider

 You must have a total asset value less than £1,000 (£300 in Northern Ireland) in order to qualify for a DRO.

 If you own a car it must be valued at less than £1,000 in order to qualify for a DRO.

 A DRO may impact your employment; we always recommend checking your employment contract. Until you have been discharged, you will not be permitted to hold certain public offices. You will also not be able to continue as the director of a limited company without permission from the court. If you have concerns regarding the specifics of your employment contract please seek independent advice on this matter.

 If you are self employed the adverse affect on your credit rating of a DRO (See below ‘Impact on credit rating’ point) may consequently impact on your business.

 A DRO is a matter of public record - details of your DRO are listed on the Insolvency Service website, which the public can access.

 The DRO will negatively affect your credit rating for 6 years from the date that the order is made.

 You will have limited access to credit until your DRO has completed, which could mean that you pay higher rates of interest until your credit rating is restored.

 DROs do not cover mortgages and other secured debts, magistrate court fines, debts payable after personal injury claims and debts to a student loans company.

 Only debts included in the DRO will be discharged at the end of the 12 month period. Any other debts will remain outstanding.

 An improvement in financial circumstances during the DRO term (i.e. you no longer meet the strict entry criteria for a DRO) could result in the DRO being revoked, meaning alternative arrangements to repay debts would need to be made.  If you have had a DRO in the last six years, are in an IVA, are going through bankruptcy proceedings or have bankruptcy restrictions, you cannot have a DRO.

 There are risks of failing to continue to pay priority bills which could result in loss of access to essential goods or services or repossession of, or eviction from, your home. A list of these bills and potential consequences of non payment is given below:

 There are potential consequences of not continuing to make repayments under credit agreements or consumer hire agreements. This could include County Court judgements (CCJ), a visit from bailiffs, money taken from your wages or benefits, debt secured against your home (homeowners only) or a creditor petitioning for your bankruptcy (if you owe more than £5,000 to a single creditor).

 You should not ignore correspondence or other contact from lenders, and those acting on behalf of lenders, as this may result in the consequences listed above or lead to you incurring further costs.

Bankruptcy or a DRO?

There are very few situations where it is better to go bankrupt if you could go for a DRO. The bankruptcy fees are much higher, the forms are longer and you may have to make monthly payments for three years…

Among the unusual exceptions are:

• • if you have very poor records of your debts. Normally the adviser that helps you set up the DRO can help fill in most of the gaps, your credit record can be a good starting point. But if there could be many debts you can’t remember, then bankruptcy is more certain as it wipes out all debts, whereas a DRO only gets rid of ones that are listed.

  • if you expect your situation to improve in the next 12 months – if it does than a DRO may be revoked, but bankruptcy would carry on.

Debt Management Plan (DMP)

Pros

• Most creditors reduce interest rates and eliminate late fees

• Most creditors reduce your monthly payments

• One consolidated payment for your unsecured debts

• Benefits typically begin after 3 timely payments

• Collection activity should stop quickly

• Debt is repaid in full

• Less negative credit impact than settlement

Cons

• Some creditors do not participate

• You may not take on any additional debt while on the program

• You must make consistent monthly payments to ensure benefits continue

In a debt management plan (DMP), your creditors agree to accept lower monthly payments over a longer period of time to help you pay off your debts. Some creditors might agree to help you by freezing interest and fees on your current debts, but this is not guaranteed.

Advantages

Choosing a DMP to deal with your debts offers a number of benefits:

• Relief from Creditor Harassment

If your creditors agree to accept your DMP proposal, you can expect them to significantly reduce their contact with you. If they are happy with the revised repayment plan, they will no longer need to harass you for payment.

• Better for your Credit Score

Whatever the situation, struggling with debt will have a negative effect on your credit score. When you begin a DMP, the fact that you are paying less towards your debts each month than you had originally intended will be recorded on your credit file. However, taking this action also demonstrates your willingness to deal with your debts without resorting to formal insolvency, so can be better for your credit score in the long run.

• Reduced Monthly Payments

The main benefit of a DMP is that the plan will reduce the amount you pay towards your debts each month. This will free up money for essential living expenses, making you less likely to resort to further credit, hence hopefully ending the vicious cycle of problem debt.

• Avoiding Formal Insolvency

A DMP is an informal solution, meaning it is not legally binding. This can be an advantage since it means that your details will not be recorded on a public insolvency register. This means you will not face the sanctions associated with formal insolvency, which can at times limit your employment options and, with bankruptcy, put your assets at risk.

Disadvantages

However, there are some drawbacks to keep in mind:

• DMPs are not Legally Binding

Although the informality of a DMP can be beneficial in some ways, it can also be a drawback. Although you can expect to have less communication with your creditors once a DMP is in place, they are not legally obliged to cease contacting you as they would be in a formal plan such as a Trust Deed or IVA Because your creditors are not legally bound by the terms of a DMP, they could also decide to stop the plan at any time, and are not under any obligation to freeze interest and fees on your debts.

• Creditors could reject your DMP Proposal

Another drawback of a DMP is that all of your creditors have to agree to its terms in order for it to go ahead. With IVAs and Trust Deeds, on the other hand, if a certain proportion of creditors accept the proposed repayment plan, all are bound by it.

• DMPs take longer to complete

DMPs last for considerable longer than other debt solutions. There is no fixed length for a DMP, but they can occasionally exceed 10 years. Formal plans tend to write off debts in a much shorter time frame. For instance, Trust Deeds typically last for five years, whilst IVAs usually last for six.

• DMPs can be more expensive than other Solutions

With a DMP, you will be expected to pay off your debts in full, making them considerably more expensive than formal solutions, which will write off a proportion of your debts. Your creditors might not agree to freeze interest on your debts either, which can quickly add up and add to the length of your plan. If you choose to organise a DMP through a private company, you will also be expected to pay administrative fees on top of your monthly debt contributions.

Can you stop an IVA if you are Unhappy?

Why would you want to stop an IVA?

There are a number of reasons why you might want to stop your IVA. You may simply feel you picked the wrong debt solution. Having had time to reflect perhaps you believe an alternative might be more suitable.

It is possible that your circumstances have changed. Perhaps your IVA company has asked you to increase your monthly payments and you feel you are unable to afford this. Alternatively your situation may have become worse and you are no longer able to maintain your payments.

Whatever the reason you can stop your IVA if you wish. The agreement is legally binding on your creditors and they are not allowed to break it. However you can.

Although an IVA is a legally binding agreement you can decide to stop paying and use a different debt solution if you wish.

Stopping your IVA if you are a Home Owner

You may have heard that if you stop paying your IVA and allow it to fail your creditors will make you bankrupt. In fact even if there is considerable equity in your property it is very unlikely they would take this option.

The reason is they would lose control of the collection process and are unlikely to recover what they are owed.

As such if you stop the Arrangement they are much more likely to simply reinstate traditional debt collection activities against you. These could include employing debt collectors or applying for a CCJ.

If one of your creditors is HMRC they are likely to try and make you bankrupt if your IVA fails. Do not allow your Arrangement to fail without getting advice if you owe money to HMRC.

What Happens to any IVA Payments you already made?

When you stop an IVA much of the debt you had at the start is likely to remain outstanding. This is because your IVA company is allowed to deduct their fees and costs from the payments you have already made.

If the payments you have been making each month are only £100/mth or less it is very likely that all of the money will be taken in fees. Your original debt will only have reduced if your payments were much larger.

Given this you will need to put a new plan in place for dealing with your debt. Depending on your circumstances you might consider starting a new IVA. Alternatively if you are not a property owner or have no equity in your home going bankruptcy could be the fastest way to become debt free.

If your IVA fails you are still liable for all your outstanding debt. You must therefore have a plan in place to for dealing with this moving forward.

How to stop an IVA once it has started

If you have decided to stop your IVA the process is relatively simple. The first thing you need to do is cancel the payment you are making into the Arrangement.

You will then need to inform your IVA Company. They may try to talk you out of your decision but ultimately they cannot stop you from letting your IVA fail. They will normally require you to put your request in writing.

Your Insolvency Practitioner will write to you giving formal confirmation your Arrangement has failed. After this your name will be taken off the Insolvency Register.

Your IVA Company usually cannot fail your IVA until your payments are 3 months in arrears. As such if you are up to date you will have to wait up to 3 months for the failure to take place.

Alternatives to IVA

Consolidation

Consolidation involves paying off your debts with one large loan. It can be achieved using a secured or unsecured loan or by releasing equity from a property by remortgaging.

You will normally only qualify for a consolidation loan if you have a good credit rating. If your credit rating is already poor it is unlikely that you will be able to borrow more and this option may not available to you.

Where you are thinking about using consolidation you must first make sure you can afford the new loan payments. If you are unable to consolidate everything you owe or the payments are more than you can afford you risk making your debt problem worse.

Debt Consolidation is the only debt solution which will not negatively effect your credit rating.

Debt Management Plan (DMP)

A Debt Management Plan (DMP) is an agreement to reduce your debt payments to an amount you can more easily afford.

The agreement is not legally binding. This provides various advantages for example you can stop and change to a different solution at any time. In addition if you are a home owner you do not have to involve your property.

However creditors do not automatically agree to write off debt for you. As a result a DMP is normally best if you can pay your debt in full within 5 years or just need a short breathing space from the payments.

Bankruptcy and Debt Relief Order (DRO)

Despite what you may think for many people Bankruptcy can be the best debt solution. This is often the case if you are living in rented property (or own a house which is in negative equity) and do not own an expensive car.

Once you are bankrupt all your unsecured debt it taken away. You only have to make further payments if you can afford to do so. You are bankrupt for just 12 months.

Your credit rating is negatively affected for 6 years. However this is the same length of time as if you were to use an IVA.

If you have debts of less than £20,000, are renting and have little or no disposable income you might qualify for a Debt Relief Order. This provides the same outcome as bankruptcy but costs far less to implement.

Administration Order

The Administration Order is probably the least used debt solution. This is partly due to the fact that it is only available if your debt is less than £5000. Also a County Court Judgement (CCJ) must already have been issued against you.

Unlike solutions such as Bankruptcy and a DRO you still need to be able to make a payment towards your debt each month. This is normally made for three years after which any outstanding debt is written off.

Given the requirement to make payments people who consider using an Administration Order normally end up choosing a Debt Relief Order.