Comparison of Solutions
Whilst it is not possible to accurately compare the relative merits of different debt solutions without a detailed fact find, we have listed below some general pros and cons of different solutions for general information purposes only. If you are unsure as to which solution is right for you, we recommend you seek advice.
Do please note that if you are considering an IVA (Individual Voluntary Arrangement), DRO (Debt relief Order), or Bankruptcy, your details will appear on a public register.
Individual Voluntary Arrangement (IVA)
Advantages
-Interest frozen
-Opportunity to write off some of the debt
-Usually a period of 60 months (5 years)
-Creditors must stop chasing if the arrangement is accepted by 75% of the monetary amount of the debt
-Court ratified procedure, although no need to attend
-Discreet solution (not advertised in local press like Bankruptcy)
Disadvantages
-Regular monthly payments must be met for the period of the arrangement, or risk of bankruptcy if payments missed.
-Creditors have the right to vote for or against the proposal
-Any increase in the equity of a property may have to be realised for the benefit of your creditors during the term
-Payments may be raised if your income increases (restrictions on your expenditure)
-Credit rating is detrimentally affected
-Only unsecured debts included in the IVA may be discharged at the end of the period and those not included will remain outstanding.
Advantages
-Debts written off.
-Automatic discharge usually at 12 months.
-Creditors must stop chasing their debt.
-Straightforward procedure.
-No longer carries the stigma it used to.
Disadvantages
-£705 cash payment (per person) to the court on the day.
-Bankruptcy advertised in press.
-Cannot be a director of a limited company.
-If you borrow £500 or more, the lender (person/company) must be aware you are bankrupt.
-Cannot hold certain positions in the community.
-Your assets are in the hands of the Official receiver.
-Credit rating detrimentally affected.
-You may be required to pay monthly disposable income to the Official received for a period of 3 years under an Income Payment Order.
Debt Management Plans
Advantages
-Releases immediate pressure from creditors.
-Allows time for another solution to be proposed.
-Keeps down monthly expenditure.
-Debt repayments based on affordability.
-Straightforward procedure to set up.
Disadvantages
-Interest on the account(s) may not be frozen.
-Payment period could go on for years
-Informal arrangement – no additional legal protection.
-Creditors may use aggressive tactics at any stage.
-Will have a detrimental effect on your credit rating.
Full and Final IVA
Advantages
-Interest frozen.
-Opportunity to write off some of the debt.
-Quick process (usually 90 days).
-Creditors must stop chasing if the arrangement is accepted by 75% of the monetary amount of the voting debt.
-Court ratified procedure, although no need to attend.
Disadvantages
-Lump sum is required.
-Creditors have the right to vote for or against the proposal.
-The settlement figure needs to be at the value of all realisable assets and there cannot be any disposable income available.
-Credit rating is detrimentally affected.
Negotiated Full and Final Settlement
Advantages
-Percentage of debts written off.
-Usually no court involvement (direct negotiation with the creditor).
-One off payment.
-No long term arrangements.
Disadvantages
-Lump sum is required.
-Negative impact on credit file.
-No guarantee of success.
-Can take a number of months to settle.
-Creditors continue chasing until settled.
-Informal arrangement and creditors do not have to accept an offer.