When the recession began in 2008 there was a sudden rush of people who required financial help and this included some people entering debt solutions.
These debt solutions have changed and adapted since they were first introduced which has caused some confusion about who should enter them.
Since the consequences of entering a debt solution wrongly can be extreme it’s important to know understand the solution and seek professional debt advice.
UK Debt Solutions
Bankruptcy and sequestration can be broken down further because there are a few ways to entering them. We won’t be breaking them down because the only change is the route to entering the debt solutions such as the cost or method rather than the actual solution itself.
Debt Management Plan:
If someone is able to repay their debt within a reasonable period of time such as 3 or 4 years they should consider entering a debt management plan. The DMP is only ever supposed to be a temporary debt solution and isn’t a formal agreement which means it can be changed by either party.
While some debt organisations will offer to manage the debt solution for a fee there are some who will do it without charging anything. The free debt organisations are often considered the best option because it means the debt is repaid quicker.
Debt Arrangement Scheme:
If someone lives in Scotland they could enter a debt management plan but a debt arrangement scheme is a formal solution and will freeze interest and charges.
The debt arrangement scheme can be entered for free but does require a local money adviser to manage the debt solution, although this is free.
Repaying Percentage Of Debt
An IVA is only suitable to people living in England, Wales & Northern Ireland but allows people to making 1 monthly contribution to all their debts. The monthly payments will last for 5 years and any debt still outstanding at the end is written off.
All interest, charges and fees incurred by the debt must be frozen once the IVA begins but there is also a consequence of wrongly enter it. Any additional income or assets someone receives while in the IVA must be paid towards the debts, this could mean paying the full debt and fees.
Protected Trust Deed:
A protected trust deed is only available to people living in Scotland for at least 6 months before they enter the debt solution.
People will make monthly repayments to their debt for 3 years and any debt still remaining at the end will be written off. Just like an IVA in the rest of the UK any additional income must be paid to the debt. Any assets someone has must be realised before they enter the trust deed.
Writing Off Debt
If he someone is unable to make any monthly contribution to their debt or have failed to enter either an IVA or trust deed bankruptcy may be a last resort.
Bankruptcy will last for 1 year but an official receiver can implement an income payment order for 3 years if they feel someone can afford to pay a contribution.
Commonly called Scottish bankruptcy sequestration is a debt solution which should only be used as a last resort to dealing with debt problems.
Sequestration will last for 1 year but if someone can afford to make a monthly contribution the trustee in sequestration can require them to pay.
Any assets someone has may also be taken and sold with any proceeds being paid towards the debt and sequestration fees if there’s enough funds.