Personal Debt

There are a number of options available to individuals who are struggling to pay their debts:

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Individual Voluntary Arrangement (IVA) – An IVA is an alternative to Bankruptcy and is an agreement with your creditors to pay all or part of your debts.  This may be done by using your spare income, a lump sum or other assets you own.  If you have surplus income after paying your essential household and personal expenses, (before paying any credit cards and loans etc) then an agreed amount can be paid each month to an Insolvency Practitioner who will then distribute funds to your creditors.  Alternatively, a lump sum payment can be offered to creditors in settlement of your debt.  Creditors will be asked whether they will accept the proposed return which is usually a percentage of what is owed and then the Arrangement will last for usually five years.  Once an Arrangement has been accepted by creditors, no further interest can be added to your debts and your creditors are bound by the terms of the Arrangement and may not seek payment from you.  The Insolvency Practitioner’s fees for an Individual Voluntary Arrangement are taken from the funds you pay and are agreed by creditors.  Therefore, there are no further fees on top of the agreed monthly payment or lump sum.

Debt Management Plan – A debt management company will negotiate with your creditors and manage your payments to them.  In a debt management plan, you make monthly payments until your debt has been repaid in full.  There is not usually a minimum debt amount but it is not recommended if your debts are over £15,000 as an IVA could be a better solution.  The debt management company cannot force creditors to accept your proposal or freeze interest.  A plan is not binding on creditors who refuse to take part in it but they cannot refuse to accept any payments made to them.  Creditors can also take enforcement action even if you are keeping up your payments under the plan.

Bankruptcy – Bankruptcy is a formal court procedure which you can start or which one of your creditors owed at least £5,000 can start.  Your assets are sold to help pay your creditors with exception of certain items (personal belongings, household furniture and tools of trade).  If you have a surplus income after paying your essential household and personal expenses, you will have to make payments for up to 3 years.  Bankruptcy usually lasts twelve months during which time The Official Receiver or Trustee will realise assets to re-pay your creditors.  All debts will be written off with certain exceptions (student loans, fines, CSA).  Whilst bankrupt, you cannot act as a Director of a company and you must not obtain credit.  The cost of petitioning for your Bankruptcy is currently £705.

Debt Relief Order – A debt relief order is only suitable if you fit the following criteria: debts not to exceed £20,000, assets must not exceed £1,000 in total (certain assets do not count, for example, clothing, furniture), surplus income must not exceed £50 per month, you must be domiciled in England or Wales and must not have been the subject to a Debt Relief Order in the last six years.  The procedure for this is very similar to Bankruptcy and the same restrictions apply.  Your case would be dealt with by the Official Receiver and the cost for an Order is £90.

All of the above can be discussed with you in more detail free of charge by contacting Adcroft Hilton on 01253 299399 or send your query by email: recover@adcrofthilton.co.uk

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