Debt Explained – Bankruptcy, IVA, Trust Deeds and More
Debt, unfortunately, affects millions of people all over the world. While it can sometimes be easy to pay back money we owe, there may be some circumstances which lead us to look for additional help and support.
For that reason, there is always plenty of debt relief support available from advisors up and down the country. There are also plenty of different ways to get out of debt without you having to take on any additional stress or worry. Getting into debt can be very stressful indeed, and getting out of it isn’t always as simple as some creditors will demand it to be.
In this guide, we will take a quick look at some of the best ways you can start to relieve yourself of debt and to get your life back on track. Don’t forget, even if a formal agreement doesn’t apply to you right now, free, friendly and impartial debt advice will help you to understand your situation a little more clearly.
What is an IVA?
In England and Wales, an IVA (Individual Voluntary Arrangement) is a popular and accessible way for debtors to consolidate and pay off debts to several creditors at once.
- With the help of a trustee, you will make arrangements to agree to a monthly payment to any creditors you may owe money to.
- Your assets may be tied to your trustee and your arrangement, and you must, therefore, agree to a certain set of rules for an IVA to be upheld.
- An IVA can not only allow you to safely and feasibly manage paying several creditors at once, it can also freeze debt collection and interest activity.
- You will likely be able to qualify for an IVA if you have an income of at least £150 per month. IVAs are based on your ability to pay.
- IVAs, similarly to other types of debt relief, will be recorded publicly and on your credit file.
What is a Trust Deed?
In Scotland, debt relief works a little differently. Trust Deeds are offered to debtors who have assets and who are willing to transfer such items of value to a trustee.
- This trustee will make arrangements between you and your creditors to arrange payments to be made in a manner which is feasible to you. Trust Deeds are fairly similar to IVAs to this extent.
- As with an IVA, debt activity and interest can be frozen. This means that, for the duration of your arrangement, you won’t be pursued for money or by any legal means.
- Your trustee will take the brunt of correspondence, which means that they will communicate with your creditors directly on your behalf.
- Trust Deeds can, however, once again have an impact upon your credit rating. However, they will not prevent you from holding public office or running your own business in many cases.
- However, it is worth bearing in mind that creditors are not obliged to agree to any terms laid out as part of a Trust Deed or IVA.
What is Bankruptcy?
Bankruptcy may sound like a feasible option to relieve debt in some ways, but in others, it is likely to be the ultimate action to take.
- Bankruptcy effectively allows you to write off all of your debt. This will, of course, be agreed upon by your creditors.
- During the process, there will be no legal action taken against you or interest added to your debt. This means that – essentially – debt activity will cease.
- However, bankruptcy can have a major effect upon your credit rating and your ability to apply for certain jobs in the future.
- Your details will appear on a public register, and bankruptcy flags will remain on your credit file for up to six years.
- While bankruptcy may seem like a viable option, it is something you should never lead into without getting advice from an experienced debt advisor beforehand.
Other Types of Debt Solution
There are many other ways through which you can find help with debt.
- Sequestration – this Scottish debt support system is very similar to bankruptcy. It is seen as an opportunity for you to wipe your debt clean – but your credit will be affected.
- Debt Management Plans – DMPs are great for helping to ease the pressure of mounting debts. These plans allow you to reduce your monthly payments with minimal risk to your credit file.
- Debt Relief Orders – DROs are only available in England, Wales and Northern Ireland. These orders can help you to write off certain debts if your financial situation does not improve within a 12-month period.
If you are worried about debt and managing your finances, help is at hand. There are many different ways through which you can relieve yourself of mounting financial demands. Debt advisors are here to help you!