Hi Graham
Given that I know relatively little about your situation except that you have debt which you need to sort out, I thought I would give you a brief overview of the solutions open to you:
1. 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 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.
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) –
www.cccs.co.uk
2. IVA
Where your total debt exceeds £18,000, 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.
However, in order to undertake an IVA, you must be able to make a minimum monthly payment to your creditors of c£300. This may be reduced if you are a homeowner. However, if this is the case then as part of your IVA you will normally have to release equity from your home. In addition, if you enter into an IVA and then are unable to make your agreed payments, you could risk being made bankrupt.
3. Bankruptcy
If you have little 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!
The route you choose will depend on a number of things including your disposable income (the amount you can afford to pay your creditors), if you are a home owner, the type of job you have and importantly, which solution you are most comfortable with.
As Batawi rightly says, if you are considering an IVA, then you need to choose the company you use very carefully. There are a number of firms who specialise in IVAs. Thomas Charles is one of the smaller ones. I believe (although I would say it) that you are better off with a smaller company. They will have time to review your circumstances in depth with you, will complete all the paperwork for you (and there is a lot of it) and normally arrange a face to face meeting for you. This is criticall as an IVA is a really serious step. If you enter into it in the wrong way (ie based on payments that you can not afford) then it could fail down line and you may be facing bankruptcy. Often, larger companies are so busy that they are unable to give the personal service required.
The bottom line is that you need to speak to someone who can discuss your situation with you and give you a balanced view. I hope this helps.
If you would like further information about IVAs or other debt solutions, please feel free to contact us.
James Falla
www.thomascharles.com