Chartered Accountant
Licensed Insolvency Practitioner

41 Kingston Street, Cambridge CB1 2NU
Tel: 0800 1953605 (Free call) or 01223 367022
Fax: 0844 5048737


I have serious debt problems.  What are the options ?

If you're finding that just trying to pay off your existing unsecured debts as they stand isn't going to work within a feasible timescale after allowing for interest which will continue to be added to the debt, then your options are basically:

Consolidation loan: This will lump all your debts into one basket and may be the answer if the rate of interest is sufficiently low to allow you to repay your debts within a reasonable timescale such that monthly payments become affordable.  However, your credit rating may be too badly impaired to obtain such a loan.

County Court administration order: This is an option if you have unsecured debts of below 5,000 owed to at least 2 creditors, at least one of whom has obtained judgement against you which you cannot pay.  It's not available if your debts are over 5,000.  For more information visit Administration orders .

Debt management: This is a procedure whereby a debt management company will negotiate with your creditors to accept a reduced payment schedule if you can no longer meet the existing level of monthly payments.  There is no basis in law for creditors to have to accept reduced payments or a suspension of interest in this way, so each creditor will have to be approached individually to see if they will agree to it.  If the debt management company is successful at getting interest to stop being added to your debt, then this can work, although you should check to see whether interest has actually been stopped and what the charges are.  You also need to see how long you would expect to be in this plan for to clear your debts.  Taking over 10 years to do it is too long to be reasonable. If they are unsuccessful at getting interest to stop then debt management is a bad way to go, because you'll probably end up being charged more in interest than you are actually making in payments, which means you'll never get out of debt.  As you have to pay your debts in full in this scheme any fees charged by the debt management company will be added to your debt burden, increasing the time taken to clear the debt.

IVA (Individual Voluntary Arrangement): This is a legally binding deal brokered by a Licensed Insolvency Practitioner who puts forward a single repayment proposal to all the creditors who vote to decide whether to accept it or not.  If 75% by value who choose to vote accept it, then it is binding on all creditors, even the ones who did not vote or voted against it.  Unlike debt management it is a "full and final" settlement which means that any debt still outstanding at the end of the IVA is permanently written off and you are free of debt.  As this is a Court monitored process which can only be undertaken by a Licensed Insolvency Practitioner, it is only suitable for larger debt cases (over 20,000 debt), as the practitioner's fees come out of payments into the arrangement that would otherwise go to the creditors.  Typically, the terms of an IVA are that for a 5 year period you will pay how much you can afford to pay, and then you are released from your debts, although if you are a homeowner with equity you may also be required to obtain a remortgage to release the equity if it is significant.  With an IVA it is possible that you could put forward a deal where creditors only get 25% of what they are owed after costs, if that is all you can afford, and the deal will still get accepted.

Debt relief order:  This is a kind of "bankruptcy lite" that only costs 90 and will wipe your debts clean in one year, however, it is limited to people with under 15,000 of debt who have assets of under 300 including any private pension (however a car is allowed up to 1,000), and would not have more than 50 per month available to pay towards their debts once their living costs have been taken into account.  If you are a homeowner then you will not be able to apply.  As you can see, the range of people to whom this applies is quite limited, however, if you consider that this applies to you, then you can apply for it through the Citizens Advice Bureau here Debt relief orders .

Bankruptcy: This is the final "throw the towel in" option, and for many people will actually end up being the cheapest way to resolve their debt situation.  It costs around 600 to make yourself bankrupt at the local County Court, however has certain consequences.  Your bankruptcy order will be advertised in the London Gazette, which is read by many financial institutions, this may cause your bank account to be frozen or closed and you may have difficulty getting a new one, your interest in your house (if you own one), will pass to the Official Receiver or Trustee, who can after a year get a Court order to force its sale if there is sufficient equity, and while bankrupt you are subject to certain restrictions, the commonest of which are that you cannot borrow more than 500 without disclosing your bankruptcy, you are not permitted to act as a limited company director, promoter or manager, and if you trade, you must trade in the same name as that in which you were adjudged bankrupt.

There are certain occupations in which a bankruptcy order can result in your exclusion from this occupation.  If this could apply to you, then proposing an IVA may be the most appropriate way to deal with your debts.  In particular, this will apply to qualified professionals or members of the police or armed forces.

If you have surplus income in excess of your reasonable domestic needs, then as a bankrupt you may be liable to make payments to the Official Receiver or Trustee for a period of 3 years notwithstanding the fact that you will be discharged within a period of 1 year or less. 

For more information about bankruptcy and alternatives thereto, refer to the Bankruptcy guidance leaflet issued by the government Insolvency Service.

Philip Beck is a Chartered Accountant and Licensed Insolvency Practitioner operating since 1996 with substantial experience in undertaking IVAs.

No approval, no fee IVA, click here for details.  Pay nothing until creditors approve your IVA proposal.

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IVA Questions and answers.

I have serious debt problems. What are the options ?

How do I know whether an Individual Voluntary Arrangement (IVA) is the best answer to my problems ?

How do I work out how much I can afford to pay per month ?

OK I'm considering an IVA . How does it work ?

Do I have to attend meetings, or can this all be done by correspondence ?

What do creditors expect from it and how likely is it they'll accept it ?

Are all of them forced to accept the majority decision ? I've got one hell bent on making me bankrupt.

What happens if they don't like the deal ?

If the IVA is rejected, do I owe you anything ?

I've buried my head in the sand, now I've got a bankruptcy petition hearing next week. Is there something that can be done at this late stage ?

Will it really write off all of my debts ?

Will I live in poverty for the duration of the IVA ?

What if I win the lottery or get a big pay rise ?

Will it appear in the newspapers ? Will people know about it ? Will I ever be able to get credit again ?

Is an IVA more expensive than just going bankrupt ?

What will happen to my house, furniture, car and domestic effects ?

I run a business. What will happen to my business ?

I'm a professionally qualified person. Will I lose my livelihood ?

My partner has no debts, and I'm living with him/her. Will he/she have to contribute to the IVA ?

My partner and I have joint debts. Can we lump them all together in the same IVA ?

How do you get paid ? What does this all cost ?

There are plenty of Insolvency Practitioners or debt advice companies around. Why should I instruct you ?

What happens if I'm unable to keep up with the payments ?

What happens at the end of the arrangement ?

What other web sites do you suggest I look at for bankruptcy/IVA advice ?

Please note that this site deals only with personal insolvency law in England, Wales and Northern Ireland. By law, only a Licensed Insolvency Practitioner can undertake an IVA for you. If you need an Insolvency Practitioner in Scotland, visit The Institute of Chartered Accountants of Scotland.   Interested in members voluntary liquidation ?

Copyright © Philip Beck Insolvency Practitioner, Cambridge UK, 2005. Bankruptcy and individual voluntary arrangements explained. Free IVA Advice. How to avoid bankruptcy with an Individual Voluntary Arrangement. Debt, debt advice, debt management, debt consolidation.