Tackling Debt Problems

 

Overview

If you owe people money there are a variety of ways you can deal with it. Your options will depend on the amount of money and assets you have.

 

Debt Management Plans  (DMP)

A DMP is an agreement between you and your creditors to pay all of your debts. You make regular payments either direct to your creditors or make a single monthly payment to a licensed debt management company (formalised DMP), the company then shares this money out between your creditors.

 

Getting a Debt Management Plan

•  Set up a plan with a debt management company authorised by the Financial Conduct Authority (FCA)

•  The company works out your monthly payments. You will have to give details about your financial situation, e.g. your assets, debts, income and creditors

•  The company contacts your creditors and asks them to agree to the plan (they don’t have to).

 

Costs

Some companies charge for setting up a formalised DMP:

•  a set-up fee

•  a handling fee each time you make a payment.

Make sure you understand the costs and structure of your plan, as some companies will take their fees in the first few payments with nothing being paid to creditors.

 

Eligibility

Formal DMPs can only be used to pay ‘unsecured’ debts, e.g. debts that haven’t been guaranteed against your property.

 

Your Responsibilities

Your plan can be cancelled if you don’t keep up your repayments.

 

Administration Orders

An administration order is a way to deal with your debts if they are less than £5,000, you have a County Court or High Court Judgment against you, and you can’t pay in full.

 

Getting an Administration Order

Fill in an application for an administration order (N92), and return it to your local court. Your advisor can assist you with this.

The court decides:

•  how much of your debt you have to repay, e.g. all or just part of it

•  how much your monthly repayments will be

•  how long the arrangement lasts.

The arrangement is known as a ‘composition order’ if you can’t pay all your debts.

 

Costs

There’s a court fee each time you make a payment. This can’t be more than 10% of your debt, e.g. if you owe £5,000 the total fee can’t be more than £500.

 

Eligibility

You must:

•  owe less than £5,000, including any interest and charges

•  owe money to at least two creditors

•  prove you can afford your repayments, e.g. give details of your income

•  have a County Court or High Court Judgment against you, which you can’t pay in full.

 

Your Responsibilities

You must keep up your repayments or the court can:

•  take money from your wages – known as an ‘attachment of earnings order’

•  cancel the arrangement.

 

Public Records

Your administration order is added to the Register of Judgments, Orders and Fines. It’s usually removed six years after the date the order was made.

Your entry is marked as ‘satisfied’ if you repay your debts in full.

You can also ask the court for a ‘certificate of satisfaction’. To do this, write to the court and send a cheque for £15 (made payable to ‘Her Majesty’s Courts and Tribunal Service’).

 

Individual Voluntary Arrangements  (IVA)

An Individual Voluntary Arrangement (IVA) is an agreement with your creditors to pay all or part of your debts. You agree to make regular payments to an insolvency practitioner (IP), who will divide this money between your creditors. You will need to have a reasonable amount of disposable income and/or assets that can be realised to take into an IVA.

 

Getting an Individual Voluntary Arrangement

Use an insolvency practitioner to get an Individual Voluntary Arrangement (IVA). Your advisor can give you guidance on where to find an approved insolvency practitioner.

Your insolvency practitioner works out what you can afford to repay and how long the IVA lasts. You will have to give details about your financial situation, e.g. your assets, debts, income and creditors.

Your insolvency practitioner will contact your creditors. The IVA will start if the creditors holding 75% of the total value of your debts agree to it. It will apply to all your creditors, including any who disagreed to it.

 

Costs

There are usually two fees, a set-up fee; and a handling fee each time you make a payment, which usually is taken directly from any contributions made.

Make sure you understand the costs before asking an insolvency practitioner to act for you.

 

Your Responsibilities

Your IVA can be cancelled if you don’t keep up your repayments.

 

Public Records

Your IVA will be added to the Individual Insolvency Register. It’s removed three months after the IVA ends.

 

Debt Relief Orders  (DRO)

DRO are one way to deal with your debts if you owe less than £20,000, have little spare income and don’t own your home.

If you get one:

•  your creditors can’t recover their money without the court’s permission

•  you are usually freed (‘discharged’) from your debts after 12 months.

 

Getting a Debt Relief Order

You get a DRO from the official receiver (an officer of the bankruptcy court), but you must apply through an authorised debt advisor. Your advisor will be able to refer you to a DRO Intermediary who will be able to help you complete an application.

 

Costs

The official receiver’s fee is £90. Your advisor will tell you how and when to pay it.

 

Eligibility

You are generally eligible if you meet all of these criteria:

•  you owe less than £20,000

•  you have less than £50 a month spare income

•  you have less than £1000 worth of assets

•  you have lived or worked in England or Wales within the last 3 years

•  you haven’t had for a DRO within the last 6 years.

 

Your Responsibilities

•  DO NOT borrow more than £500 without telling the lender about your DRO

•  DO NOT act as the director of a company

•  DO NOT create, manage, or promote a limited company without the court’s permission

•  DO NOT manage your own business without telling those you do business with about your DRO.

Check the Individual Insolvency Register to see when the restrictions end. The restrictions will usually last 12 months. But they can be extended if careless or dishonest behaviour caused your debt problem, e.g. you were untruthful when trying to get credit.

The official receiver will tell you if they should be extended. To extend them, you will be asked to agree to a Debt Relief Restrictions Undertaking. The court can issue a Debt Relief Restrictions Order if you don’t agree.

DROs can be cancelled if:

 •  your finances improve

•  you don’t co-operate with the official receiver

What you need to know

•  your DRO is added to the Individual Insolvency Register, it is removed three months after the DRO ends

•  your DRO will stay on your credit record for 6 years.

 

Apply for Bankruptcy

Our advisers can support you with an online application to petition for bankruptcy. 

Costs

There is a fee of £680 which can be paid in installments.

Your Responsibilities

•  Provide information about your financial affairs to the Official Receiver. Your local O.R. office will contact you to arrange a telephone discussion. You may also have to attend an interview at the Official Receiver's Office at a later date.

•  Collect and hand to the Official Receiver, all your account books, records, bank statements, insurance policies and other papers relating to your assets and debts

•  Tell your trustee in bankruptcy about any assets and increases in income you receive during your bankruptcy

•  Stop using your bank and building society accounts, credit cards and similar accounts straight away

•  DO NOT get credit of £500 or more from any person without first telling them that you are an undischarged bankrupt

•  DO NOT make payments direct to your creditors for money that you owed before the bankruptcy order was made.

 

Exiting Bankruptcy

Usually you will be discharged from Bankruptcy after 12 months, however if you have been deemed to have enough income to be able to make payments then these will continue for 3 years.

 

Tel:       0151 226 3406

Email:   debt@standrewslive.org.uk