Hi Georgie
Melanie is quite right, I think your best options are either Bankrutpcy or IVA. I have given a summary of each of the 3 possible options open to you below (Debt Management; IVA or Bankruptcy) so you have a bit more info.
Given that you are renting (and I assume your new job would not be effectd by bankruptcy), then I think that Bankruoptcy could be the right option for you. Afterall the reason you are in debt does not seem to be your fault. With bankruptcy, you will be discharged after 12 months and if you have to pay anything (which i think on your income would be unlikely) then this would only be for 36 months compared to 60 in an IVA.
There may only be 2 things that would stop you from bankruptcy: First, the publicity element (ie name in paper). However, lets face it, most people do not care about this particularly if you live in a town or city. Second, do you feel a moral duty to pay back as much as you can. If so than the IVA would be the right option.
Options for Dealing with Debt
1. Informal Repayment Plan
Where your debt is typically less than £15,000, a sensible option might be to consider an Informal Repayment plan. This is an agreement with each of your creditors to reduce the amount you pay to each of them to fit within a budget you can afford. The advantage of this is that you start to repay your creditors in a sensible managed way and stop making things worse by robbing Peter to pay Paul.
Although on the face of it, this solution sounds good, there are some significant drawbacks. Firstly because you still have to pay 100% of your debt back, it is likely to take you much longer to repay your debts than would otherwise have been the case. Also, the solution is not legally binding. Therefore there is no guarantee that further interest charges will be frozen. It is also possible that your creditors will take further action against you such as an application for a County Court Judgement or Charging Order against your property.
If you have the time (and generally a very thick skin) you can negotiate an informal payment plan with your creditors yourself. However, this can be very difficult and time consuming. However, don’t despair. You can get free help by contacting either your local Citizens Advice Bureau or the CCCS (Consumer Credit Counselling Service) – As such there are companies available who can help you with this.
2. IVA
Where your total debt exceeds £15,000, a better solution may be to consider an IVA (Individual Voluntary Arrangement). This is a more formal, legally binding way of dealing with your debt. It allows you to make an offer to settle your debts with your creditors over a 5 year period (no longer than a standard unsecured loan). Further interest and charges are frozen by law and you make just one monthly payment based on what you can afford. At the end of 5 years, whatever debt is outstanding will be written off legally thus leaving you debt free to turn over a new leaf.
In order to undertake an IVA, you must be able to make a minimum monthly payment to your creditors of c£250-£300. This may be reduced if you are a homeowner and you can release some equity as part of the deal. Releasing equity may not be a very palatable proposition but at least having done this within the legal framework of an IVA, you know that your debts will be totally gone. You also retain full control of your property which is certainly not the case for the final option below.
3. Bankruptcy
If you have little or no income in order to make any kind of monthly payment to your creditors and no definite view as to when this might change, then the only way you can solve your debt problem for good is to declare Bankruptcy. In doing this, the Court will take away from you the responsibility of paying your debts. You will normally be bankrupt for 12 months. After this time, any unpaid debt will be written off and you will be able to turn over a new leaf, debt free (although you might have to make payments towards your debt to the court for up to 3 years). If you rent your property and have no valuable assets (e.g. an expensive car) it is very unlikely that the Court will require you to give up any of your goods.
The significant downside to bankruptcy is that if you have property, then the Court has the right to take such an asset from you and sell it for the benefit of the creditors. If you are a property owner, you must ensure you take further advice before deciding to declare yourself bankrupt!
James Falla
Expert in IVA, Bankruptcy and informal Debt Management solutions, with extensive experience of solving personal debt problems over the past 10 years. I am regularly featured on BBC News, Finance Programs and Radio.
Visit my blog at:
http://jamesfalla.blogs.iva.co.uk
