Clearing Debt Problems

Debt management has become very important in today’s society where people have become reckless with credit by failing to think about their repayment capabilities. Debt problems lead to hassle from creditors when the debt payments become too high to be paid in full. Clearing debt problems becomes an utmost priority for any debtor who is considering bankruptcy as a method of resolving their debts. Bankruptcy should only ever be seen as a last resort for clearing Debt Problems. Instead, a debtor may be able to renegotiate repayment terms so that debts become more affordable. This can be done by the individual, or through a company or charity specialising in this field. A Debt Management Plan is arranged with your creditors and enables a debtor to make reduced repayments over a longer period of time. However, a Debt Management Plan has no legal backing and a creditor can renege on any agreement at any time. If you want the certainty of a fixed-term repayment plan based on your monthly disposable income, and IVA, or Individual Voluntary Arrangement, may be a better choice.

An IVA is drawn up by a licensed insolvency practitioner and presented to the courts and creditors. Providing the creditors accept the proposals for repayment and the debtor adheres to the proposal, the debtor is legally protected from bankruptcy petitions and legal action from the creditors.

A debtor’s personal circumstances dictate whether an IVA is a suitable option. As a general rule, a debtor would need debts of over £20,000 and the ability to pay at least £200 per month in order to be accepted. Each case is judged on its merits, however, so these figures are not cast in stone. If your debts fall outside the scope of an IVA, a Debt Management Plan may be a more suitable option. The following are the benefits of a DMP,  or Debt Management Plan:

• Debt management plans are completely informal and involve a resolution of a person’s debts over a very long period of time. It is an informal plan and that is why these kinds of agreements are not binding on the lenders.
• Make only a single instalment per month, rather than paying all the creditors simultaneously
• lowered and/or reduced interest rates
• reduced Monthly payments depending on what a debtor can afford to pay.

A debt management plan is a very comprehensive plan with some providers offering additional services such as online access to a debtor’s plan.