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Top 5 Debt Solutions available to Consumers
Finding the right debt solution in today’s market can be an arduous task. With so many companies promising to freeze interest and charges, reduce hassle from creditors and even completely write off your debt using a legal process it can be hard to know where to start looking for the right help. Here is a brief summary of the top 5 key debt solutions currently available to consumers.
PLEASE NOTE: ALL FEES QUOTED BELOW ARE BASED ON AN AVERAGE ACROSS THE INDUSTRY. EACH DEBT SOLUTION COMPANIES FEES MAY VARY. BE SURE TO CHECK WITH EACH COMPANY BEFOER GOING AHEAD WITH ANYH PLAN.
IVA stands for Individual Voluntary Arrangement. It is a legally binding agreement between you and your creditors and will allow you to make one lower affordable monthly repayment for a fixed term, usually 60 months (5 years). Once you have made all the repayments over the set term any remaining debt is written off and you walk away debt free.
- To qualify for an IVA you need to owe at least £5,000, owe money to 2 or more different creditors and you must be able to afford at least £80 towards your debts each month
- You creditors are legally not allowed to contact you
- An IVA is a form of insolvency and WILL affect your credit rating.
The costs involved in an IVA are:
- A Nominee fee
- A Supervisor fee
The Nominee fee is the cost for helping you to put the IVA proposal to your creditors. This is subject to approval by your creditors. Depending on who your creditors are and the amount of your monthly contribution, the fees are typically around £2,000.
The Supervisor fee is typically 15% of any further realisations, to cover the costs of managing the IVA for the full duration. So, if you entered into an IVA you’d pay monthly contributions or money from assets to pay the Nominee fee at first. Then any remaining money you’d pay towards it would go towards the Supervisor fee.
2. Debt Management
A Debt Management Plan is an informal arrangement between you and your creditors to repay your debt at a slower rate. Example; If you are paying out £1,000 per month on your unsecured debts you can write to your creditors and ask them to freeze the interest and charges to enable you to repay the debt quicker.
Note; most creditors wont respond to this unless you have missed payments already as they do not want to help you in you are not struggling.
- To qualify for a debt management plan you must owe at least £2,000 towards 2 or more creditors and be able to afford at least £100 towards your debts each month
- A debt management plan WILL affect your credit rating as you are effectively breaking the original terms and conditions you signed when taking out the debt
Debt Management Fees
Management fees will be charged of 18.5% of your regular payment to the Debt Management Plan (DMP) (this could be every four weeks or monthly depending what suits you best and when you receive your regular income), and is subject to a minimum of £38.50 and a maximum of £90. This fee covers the month-to-month running of your DMP, including negotiating with your lenders, distributing payments and taking care of correspondence between you and your lenders.
This fee also typically covers our regular reviews of your circumstances – normally once every 12 months (or any other time your circumstances change). If your situation has changed and your ability to keep up with your debt management plan is affected, then the debt advice company can talk to your lenders about changing your payments accordingly.
3. Scottish Trust Deeds (Scotland Only)
Scottish Trust Deeds are the Scottish equivalent of an IVA. They are a formal agreement between you and your creditors to repay the debt owed to them. They differ slightly in the respect there is a shorter term to repay the debt and the amount you must owe in total is lesser. The usual term for a Trust Deed is 48 months (4 years), after this period any remaining debt is written off.
- To qualify you must owe at least £5,000 in unsecured debt to 2 or more creditors and be able to afford at least £100 towards your debts each month
- A Trust Deed can protect your assets from repossession
- A Trust Deed WILL affect your credit rating
Scottish Trust Deed Fees
The structure of your Trustee’s fee is determined by the legislation which governs Trust Deeds. The fee will consist of:
- (a) A fixed fee, typically £2,500 for a 4 year Trust Deed.
- (b) An additional fee based upon a percentage of the total assets & contributions realised by the Trustee, typically set at 20%.
- (c) Outlays incurred after the date the Trust Deed was signed (detailed below).
4. Debt Arrangement Scheme (Scotland Only)
Under the DAS regulations, the maximum that you will to pay is 100% of the debt that you owe. Any associated fees are taken from this amount. The lenders know that two fees will be taken from the amounts that you pay before the payments are distributed to them.
There are two parts to the DAS fees. The first part, which is paid to the Accountant in Bankruptcy (the Scottish government body that administers the Debt Arrangement Scheme), is 2% of the amount that is distributed to lenders. The second part is a 20% administration fee that is paid to us before payments are distributed to your lenders. Your lenders know that these fees are set by the DAS regulations and they will not ask you to pay anything else to cover the fee.
5. Sequestration (Scotland Only)
The application fee for Sequestration in Scotland is £200 or £90 for MAP and there are no waivers or exemptions to this fee. During your Sequestration the Trustee will charge fees for their professional costs, (usually on an hourly/time and costs basis). These fees will be taken from any contributions, after which, the remaining sum (if any) will be distributed to your lenders.
The Accountant in Bankruptcy determine the level of fee’s we charge, based on the time we have spent working on the case. For example the average fees taken by us based on sequestration cases that were completed in 2014 was £5175. Please note this was also based on a term of 3 years. This will increase to 4 years from April 1st 2015. A fee is only payable when you have been assessed as being able to make a regular contribution towards your sequestration.
Bankruptcy should only be sought as a last resort. If you do file for bankruptcy you will not be able to get credit easily in the future and you may struggle to obtain a mortgage. You assets, i.e. your home or your car are at risk as the official receiver may force you to sell to repay back to the creditors. You may also be asked to repay a percentage out of your wages each month for a set period to again help recoup some of the losses to the creditors.
- To qualify for a Bankruptcy you must not be able to afford to repay your debts at all
- Most bankruptcy orders only last for 12 months so you will be debt free after this period
- You possessions such as your house and car can be repossessed.
- You credit rating will be affected and you will struggle to obtain further credit in the future
England and Wales
The administration fee to apply for Bankruptcy in England and Wales is £680, which is payable to the Insolvency Service via gov.uk. To apply for bankruptcy you will need complete an online application and submit this to the Insolvency Service where an adjudicator will then consider your application.
You will need to apply to the High Court for your Bankruptcy and your local Citizens Advice Bureau can assist you with this process.
There are three fees that you will need to pay when you take your petition to the Court:
- A fee of £525 towards the costs of administering your bankruptcy
- The Court fee of £115 (this fee may be waived in some circumstances, the court staff will be able to advise you)
- A fee payable to a solicitor relating to the Statement of Affairs which costs approximately £7.
7. Debt Relief Orders
A Debt Relief Order is a milder form of bankruptcy. It is a government backed scheme which is provided by the Insolvency Service and can be an effective way of clearing your debts if you are currently out of work or have a low income. The duration of a DRO is usually a year and during that period your creditors are legally not allowed to contact you. As in bankruptcy, after the 12 month period has expired you will be debt free.
- you owe £20,000 or less.
- you have less than £50 to spend each month, after paying tax, national insurance and normal household expenses.
- you’ve lived or worked in England or Wales in the last 3 years.
- your assets aren’t worth more than £1,000 in total.
Debt Relief Order Fees
A one of fee of £90.
If you feel you need some free debt help and advice on the best debt solutions for consumers visit our website which is packed full of information that can help you get back on your feet with your finances.