Seven Solutions for Dealing with Personal Debt Problems

By Jacob Marsh

There’s a lot of alternatives for coping with challenges of personal debt but in the UK or especially in England, Wales and Northern Ireland, the top seven choices probably account for in excess of 98% of solutions. The law in Scotland is to some extent different to the rest of the United Kingdom so it is ruled out from consideration for the purposes of this short article.

In no particular order, the seven solutions can be summarized as follows:

Firstly, you can seek to reach a negotiated agreement between you and your creditors to repay some or all of your debts. This is sometimes called a self administered debt management plan where you do all the negotiations with your creditors without the assistance of a third party.

Secondly, you may seek to reorganize or wipe out your debts through getting a loan from a lender. This is often known as debt consolidation where you pay off all or most of your debts from the money borrowed in a single new loan. So now you typically have just one debt to service.

Thirdly, you can engage the services of a debt management company to negotiate with your lenders as your representative and to organize your payments to them. This is usually referred to as a Debt Management Plan or a DMP.

Fourthly, if your liabilities amount to no more than 5,000 and are owed to at the very least two creditors and providing you have a court judgment entered against you by one of those creditors that you cannot pay in full, you could request the court to create County Court Administration Order, called a CCAO. While under this kind of order you make weekly, monthly or quarterly payments to the court, which shares the money amongst your lenders in proportion to the sums you borrowed from them.

Fifthly, as long as you are insolvent and have regular earnings or property or both, you could enlist the services of an insolvency practitioner to put together, negotiate and administer an arrangement for you to voluntarily repay your lenders a certain amount of or occasionally all of the debts you owe them. This type of agreement is called an Individual Voluntary Arrangement or an IVA.

Sixthly, if you have a low income, assets of no more than 300 and debts not exceeding 15,000 in total, you can, without going to court, on payment of a fee of 90, seek for a Debt Relief Order (DRO) to be made and if granted, your debts will be cleared in twelve months, without your having to make any further payments.

Last of all, if none of the six solutions above are suitable for your situation, then the seventh course of action in this shortlist could possibly interest you. This of course is bankruptcy, which can be started by yourself or indeed by any one of your lenders to whom you owe not less than 750. Your assets are sold and you may also have to make payments from your excess earnings for as much as three years, to help clear the money you owe.

Each one of these choices has some worth but they differ considerably from each other. The best choice for you personally will be determined by your own personal preference, your existing and future circumstances and those of your family. The sum you owe, your earnings and your assets will likewise have a crucial bearing on which remedies are accessible to you. To enable you to choose, you might want to check out the website of The Insolvency Service where you can find a publication entitled ‘In Debt – Dealing with your Creditors’. This gives a detailed summary of the pros and cons of each solution and it compares and contrasts the various options with one another. Furthermore, it provides you with contact information for various government funded advice agencies where you may receive free advice.

If you feel you need a personal debt solution like an IVA or debt management, contact us. We offer information on IVA and Debt Management solutions.

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