Support for individuals

An IVA avoids bankruptcy and is a really useful way to deal with personal debts.

It’s an agreement between you and your creditors, where you make funds available to the creditors bound by the agreement. This usually involves making one monthly payment out of your income for a set period of time and, if you have any assets such as equity in your property or endowment policies, you may have to make some of this available too.

An IVA gives you protection from your existing creditors, and once your obligations are fulfilled, your debts are written off. Your credit rating isn’t as seriously affected as in bankruptcy, and you can continue to trade.

This negotiates a lump sum payment to creditors to avoid bankruptcy.

When your circumstances are unlikely to improve in the future, creditors might be prepared to accept a final settlement that’s less than the total amount you owe. If creditors accept your offer, they agree to write off the balance of your debt. This is only really appropriate if you have no assets and no income to make monthly contributions to creditors.

After the settlement, creditors will stop calling and writing to you. But remember, negotiations can take some time, and creditors might continue legal action, as there is no legal protection.

With a DMP, you make a single monthly payment to a company that negotiates with your creditors on your behalf.

The DMP company handles all communication with your creditors and negotiates repayments. It might have interest frozen on your accounts, and it has day-to-day control of your debts. There is no ‘end date’ to your debt problems, so this is only really a short-term solution.

You can apply for a DRO from The Insolvency Service if you’re unable to pay your debts, owe less than £20,000, don’t own a car worth more than £1,000 and have other assets of £1,000 or less.

After taking away tax, national insurance contributions and normal household expenses, your disposable income must be no more than £50 a month. A DRO lasts 12 months, and in that time, creditors can’t take any action to recover their money without permission from the court. At the end of the period, if your circumstances haven’t changed, you’re freed from the debts included in your order.