Debt Solutions – What’s available?
As you may qualify for some of the following solutions, we’ve put together this helpful guide to the main costs, risks and advantages of each solution. MoneyPlus Advice can help you to find the solution that’s right for you.
To discover more about how to manage your debt and to receive free debt advice, you can visit www.moneyhelper.org.uk.
To discover more about how to manage your debt and to receive free debt advice, you can visit www.moneyhelper.org.uk.
Individual Voluntary Arrangement (IVA)
What is an IVA?
An Individual Voluntary Arrangement (IVA) is an agreement reached between you and your creditors to repay the money you owe over a set period, usually 5 years. It’s a legally binding arrangement designed to make your debt more manageable.
An IVA must be arranged and supervised by a licensed Insolvency Practitioner (IP). Once you enter an IVA, your creditors aren’t permitted to contact you directly. Instead, all contact goes through your IP.
After making payments for a set period (usually 5 years), any outstanding eligible debt included in the IVA will be written off.
Key details
- Regular payments based on your affordability
- Definite end date (usually lasts for 5 years)
- Interest and charges guaranteed to be frozen
- An IVA will appear on your credit report for 6 years, starting from the date it was approved
- Your details will appear on a Public Register
- If you do not keep to the terms of the IVA, it may fail and another solution may be needed
- Once completed, any outstanding eligible debt included in the IVA will be written off
Who is an IVA suitable for?
An IVA may be suitable if:
- You live in England, Wales or Northern Ireland
- You have at least 2 unsecured debts such as credit cards, personal loans and BNPL debts
- You have debts over £6,000
- You can afford regular payments of £90 or more
- You want legal protection from creditors
- You want a fixed repayment term
An IVA may not be suitable if:
- You cannot afford regular payments
- You have very low debt levels
- You have mainly debts that can’t be included such as secured loans, student loans or child maintenance
- You want a very flexible arrangement
IVA costs and fees
There are two main fees in an IVA:
| Fee | Amount | What it covers |
|---|---|---|
| Nominee’s Fee | £2,100 | Setting up the IVA Preparing the IVA Proposal Dealing with creditors Meeting regulatory requirements |
| Supervisor’s Fee | £35 per month | Managing the IVA Collecting and distributing payments to your creditors Annual reviews and ongoing support Final reporting |
- These fees must be approved by your creditors.
- Fees are paid from your IVA payments.
- The Nominee’s Fee is usually taken from your first payments after the IVA is approved.
- The Supervisor’s Fee is collected throughout the IVA.
- If you receive unexpected money, such as an inheritance or bonus, an additional fee of 15% may be charged on amounts paid into the IVA.
Debt Management Plan (DMP)
What is a DMP?
A Debt Management Plan (DMP) is an informal way to repay unsecured debts at a rate you can afford.
You make one regular payment, which is shared between your creditors after any fees have been deducted. The amount is based on your income and essential living costs.
A DMP is not legally binding. Creditors do not have to agree to it, but many will consider reduced payments if they believe the offer is fair.
Key details of a DMP
- One affordable monthly payment
- Payments are shared between your creditors
- The plan can be changed or cancelled if your situation changes
- No fixed end date
- Your credit rating may be affected
- Creditors do not have to agree to freeze interest or charges
- A DMP does not automatically prevent further recovery action from creditors
The plan usually continues until your debts are fully repaid, you choose to end the plan, or another solution is chosen.
Who is a DMP suitable for?
A DMP may be suitable if:
- You have unsecured debts such as credit cards, loans, overdrafts or catalogues
- You can afford to pay something each month, but not your full contractual payments
- You want a flexible arrangement that can change if your circumstances change
- You are comfortable repaying your debts in full over time
A DMP may be less suitable if:
- Your debts are very large and repayment would take a very long time
- You cannot afford any payment towards your debts
- You need legal protection from creditors
In those cases, other debt solutions may be more appropriate.
DMP costs and fees
| Fee | Amount | What it covers |
|---|---|---|
| Arrangement fee | £500 | Setting up the DMP Dealing with creditors Meeting regulatory requirements |
| Management fee | £52 per month or 49% of your monthly payment (whichever is lowest) | Managing the DMP Collecting and distributing payments Annual reviews and ongoing support |
For free, impartial debt advice, you can also visit MoneyHelper
Debt Relief Order (DRO)
What is a DRO?
A Debt Relief Order (DRO) is a debt solution that allows people with debts up to £50,000 and little income or valued assets, to be relieved from their repayments for 12 months. After this time, any eligible debts included in the DRO are officially written off.
A Debt Relief Order is designed for those living in England, Wales or Northern Ireland who are unable to repay outstanding debts.
Key details
- A DRO typically lasts for 12 months
- There are no monthly payments
- There are no application fees
- A DRO remains on your credit file for 6 years from the date it was agreed
- Your details will appear on a Public Register
Who is a DRO suitable for?
A DRO may be suitable if:
- You live in England, Wales or Northern Ireland
- You have little or no surplus income or assets
- You don’t own property
- You have unsecured debts under £50,000
- You can’t afford a repayment plan like DMP or IVA
A DRO may not be suitable if:
- You have more than £50,000 unsecure debt
- You can afford to make monthly payments towards your debt
- You have more than £75 disposable income per month
- You have assets worth more than £2,000
- Your vehicle is worth more than £4,000
DRO costs and fees
There are no fees for a DRO but it’s important to be aware of the DRO rules and restrictions before applying, as breaching them can affect your DRO.
Protected Trust Deed
What is a Protected Trust Deed?
A Protected Trust Deed is a legally binding, formal debt solution available to residents of Scotland. A Protected Trust Deed consolidates your debt into a single, affordable monthly payment based on what you can realistically afford. It can also grant you legal protections from creditors, so they can’t chase for payments, and allow you to write off debts at the end of the repayment period.
A trustee is appointed to oversee the Trust Deed and ensure that all the terms of the agreement are followed. The trustee will liaise with creditors, handle your payments, and ensure that any remaining debt included in the trust deed is written off at the end of the term. Their role is to protect both your interests and those of the creditors.
Key details of a Protected Trust Deed
- One affordable monthly payment
- All interest and charges frozen
- Usually lasts 4 years
- If payments are maintained, you will be protected from any further action from creditors
- A Protected Trust Deed will appear on your credit report for 6 years, starting from the date it was approved
- If you don’t stick to the terms of the Protected Trust Deed, it may fail and an alternative solution will be needed
- Once completed, any outstanding eligible debt included in the Protected Trust Deed will be written off
Who is a Protected Trust Deed suitable for?
A Protected Trust Deed may be suitable if:
- You live in Scotland
- Have at least £5,000 in debt
- Are in debt to multiple creditors
A Protected Trust Deed may be less suitable if:
- You cannot afford monthly payment towards your debts
- You are a company director
There are also certain jobs that won’t allow you to have a Protected Trust Deed while working there, such as those in financial or legal services. It’s therefore worth checking your contract before applying.
Protected Trust Deed costs and fees
| Fee | Amount | What it covers |
|---|---|---|
| Trustee’s fixed fee | Usually around £2,500 | A set amount to cover the setup and administration of the Trust Deed over its typical four-year term |
| Realisation fee | Typically a percentage of the monthly payment | Managing the Protected Trust Deed Collecting and distributing payments Communicating with creditors and ongoing support |
Bankruptcy
What is Bankruptcy?
Bankruptcy is an option if the amount you owe is more than any assets that you own. Bankruptcy usually lasts 12 months and creditors won’t be able to contact you during this time.
Bankruptcy is a legally binding solution and is intended for those who can’t repay their debts using income or assets in a reasonable period of time. During Bankruptcy, your assets may be sold and you’ll have to follow certain restrictions.
Key details of Bankruptcy
- It can be started by your creditors if you owe them over £5000
- Your details will appear on a Public Register
- Credit rating affected for a minimum of 6 years
- Your assets can be sold to help pay your creditors (with certain
- exceptions)
- You cannot obtain more than £500 in credit without permission
Who is Bankruptcy suitable for?
Bankruptcy may be suitable if:
- You live in England, Wales or Northern Ireland
- The amount of debt you owe is more than the sum of your assets
- You can afford to pay the £680 application fee
Bankruptcy may not be suitable if:
- You have significant equity in your home
- You have enough disposable income to comfortably repay your debts
- You have valuable assets
There are also certain jobs that can be affected if you are declared Bankrupt, such as those in financial or legal services. It’s therefore worth checking your contract before applying.
Bankruptcy costs and fees
Court fees are set at £130 for England and Wales (£115 for Northern
Ireland).
There’s also a bankruptcy deposit of £550 (plus £7 in Northern Ireland
solicitors’ fee.)
If you pay online when you fill in your bankruptcy application form, you
can choose to pay by instalments.
Sequestration
What is a Sequestration?
Sequestration is a form of insolvency and the Scottish equivalent of Bankruptcy. If offers relief from debts, when there is no other way to repay them. Sequestration will involve selling any assets, including your house, car, and other valuables, to offset your outstanding debts to your creditors
Key details of Sequestration
- You will be discharged after 12 months, however it may be extended if you do not co-operate
- Stops legal action from creditors
- Creditors can’t reject the Sequestration
- Interest, fees, and charges are frozen
- Possessions, including your house and car, will vest in the Trustee
- Your details will appear on a Public Register
- Credit rating affected for a minimum of 6 years
- You are required to declare that you are insolvent to anyone you apply to for credit
Who is Sequestration suitable for?
Sequestration may be suitable if:
- Live in Scotland
- Your outstanding debts exceed £3,000
- You have £150 for the application fee
- You are able to prove you are unable to pay your debts
Sequestration may be less suitable if:
- You have been bankrupt in the last 5 years
- You have equity in a property
Sequestration costs and fees
To apply for Sequestration in Scotland, you will need to pay a £150 fee to the Accountant in Bankruptcy and gain the agreement of your creditors, or a certificate of insolvency from an Insolvency Practitioner (IP). The fee may be waived if you’re assessed to have no surplus income or you receive certain benefits, such as Universal Credits, Child or Working Tax Credits. Once your application is complete you will be protected from legal action brought by your creditors.
To move ahead with Sequestration, you will need a trustee, who is a licensed Insolvency Practitioner, to contact your creditors following your Sequestration’s approval. Your trustee’s fees and costs are taken from the Sequestration funds and your monthly contributions.
Debt Arrangement Scheme
What is a Debt Arrangement Scheme?
A Debt Arrangement Scheme is a debt solution available to residents of Scotland that allows you to repay your debts by making affordable monthly payments.
The DAS also protects you from any future legal action from your creditors, or any debt collection companies seeking to recover money, in what is known as a Debt Payment Programme (DPP).
A DAS is designed to be an alternative to Sequestration or a Protected Trust Deed for residents of Scotland wanting to avoid insolvency while repaying unaffordable debts. If approved, a Debt Arrangement Scheme can freeze interest and charges as well as protect you from legal actions by your creditors.
Key details of a Debt Arrangement Scheme
- Your details will appear on a Public Register
- Your credit rating may be affected for 6 years
- Interest and charges will be frozen
- Creditors can’t contact you or take legal action against you
- Your possessions and property remain safe, regardless of equity value
Who is a Debt Arrangement Scheme suitable for?
A Debt Arrangement Scheme may be suitable if:
- You live in Scotland
- Have more than one debt
A Debt Arrangement Scheme may not be suitable if:
- You are party to a Protected Trust Deed or Bankruptcy
- You have no disposable income left after paying essential living costs
Debt Arrangement Scheme costs and fees
The money adviser will make a charge of no more than 2% for the
application fee and 8% for the payment distribution fee. These
fees are included in your monthly payment and do not affect or
increase the amount you pay each month.
Self Help
What is Self Help?
Self help means dealing directly with the people or companies you owe money to, without using a formal debt solution or a debt management company.
You contact your creditors yourself and ask them to accept reduced payments based on what you can afford. You can also ask them to freeze interest and charges while you get your finances back on track.
Self help can be a good option if you have a small number of creditors and feel confident managing your own arrangements. However, creditors do not have to agree to your requests, and you will be responsible for keeping in touch with them and managing any changes to your payments.
Because self help is informal, creditors can still contact you and take action to recover the money they are owed.
Key details
- One affordable monthly payment
- Payments are shared between your creditors
- The arrangement can be changed or cancelled if your situation changes
- No fixed end date
- Your credit rating may be affected
- Creditors do not have to agree to freeze interest or charges
Who is Self Help suitable for?
Self Help may be suitable if:
- You only have a few creditors
- You feel comfortable contacting your creditors directly and negotiating repayment
- You can manage your repayments and stick to a budget
Self Help may be less suitable if:
- You have a lot of creditors
- Don’t like speaking to your creditors
Costs and fees
There are no fees or costs involved when dealing directly with your creditors.