Below are some comparisons between the different options available to clients seeking debt consolidation:
| |
IVA |
Debt management scheme |
Consolidation loan |
Bankruptcy |
Does it protect me from all my unsecured creditors? |
|
|
|
|
Will I be able to avoid selling my house to release any equity? |
|
|
|
|
Does it stop the interest building up? |
|
|
|
|
* Are all my unsecured creditors legally obliged to write off the debt I cannot afford to repay? |
|
|
|
|
* Are the creditors who don't want to help me forced to do so? |
|
|
|
|
** Does the arrangement run for a fixed period? |
|
|
|
|
Will my creditors stop chasing me? |
|
|
|
|
*** Does it avoid the stigma of bankruptcy? |
|
|
|
|
Will this avoid my situation being made public in my local newspaper? |
|
|
|
|
Do the people providing the service have to be professionally qualified and licensed? |
|
|
|
|
* 75% of creditors, by value, must agree to the IVA before the remaining creditors are obliged to join.
** 5 years is typical but there is a discretionary period after the 5 years where the IVA Supervisor may further extend the payment period where equity payments are necessary (up to 12 months to allow the debtor to make additional contributions equal to the earlier valuation obtained on the property) and/or to allow the supervisor to complete administration of the arrangement, or to allow for any unforeseen payment delays.
*** If the arrangement fails this could lead to bankruptcy.
IVA
The Individual Voluntary Arrangement (IVA) is normally only an alternative if you have debts over £15,000, are borrowing from at least 3 lenders and are in receipt of regular income.
The IVA is a legally binding agreement. You make monthly contributions over the term of the agreement (usually 5 years). At the end of the term any remaining debt is written off by the lender. The IVA is managed by an Insolvency Practitioner who will charge a fee; this fee is normally deducted from monthly contributions.
Your contributions will be regularly reviewed and will be increased if you can afford to pay more. If you are a homeowner you may be required to remortgage your home and pay any monies raised to your creditors
Consolidation loans
A consolidation loan is a new loan; the money borrowed is used to repay your existing credit. Loans may be either secured or unsecured; it may even be possible to obtain a further advance form your mortgage lender or remortgage your home. By consolidating existing debts into a single repayment it may be possible to lower your monthly repayments. You may need to borrow the money over a longer period of time and as a result you may pay back more over the longer term.
Debt management
Debt management arrangements are generally more suitable if your borrowing is less than £15,000, you are in receipt of regular income and can afford to make some monthly payments. Debt management companies will negotiate with your creditors on your behalf to try to persuade creditors to agree to lower your repayments. You will generally be required to pay a fee to the debt management company but the fees may be deducted from the amount that is paid to your creditors. The fees charged by Debt Management Companies differ greatly but typically can be between 10% & 45% of the total monthly repayment or the first 3 months payments made by the consumer.
Any agreement is ”informal“ which means that interest and charges may continue to accrue on your borrowing; however your repayments will be based on what you can actually afford.
Bankruptcy
Bankruptcy is the last resort for the seriously indebted; subject to certain exemptions, bankruptcy means your assets (house, car etc) are sold off and the money used to pay your creditors.
As well as meaning that your situation is advertised in newspapers, bankruptcy brings with it other restrictions including possibly having bank accounts and credit cards closed and may in certain professions mean losing your job. |
