I’m Deep in Debt. What Are My Options?

When faced with insurmountable debt, the borrower will need to know the options available. Getting in touch with a non-profit debt counsellor such as National Debtline or the Consumer Credit Counselling Service will provide answers, but in simple terms, there are several clear cut choices. These are:

Informal Arrangement with the Creditor

Negotiating an agreement with the creditor on a payment plan follows no guidelines and depends upon the creditor concerned, the debtor’s circumstances and the amount owed. But basically, the debtor, (often with the support of a debt counsellor) will agree on the monthly amount to pay back and the time frame. The amount could be as small as £1 per month over any time period. However, the debt is often written off after six years. It must be borne in mind the creditor or acting debt collector may contact the debtor at any time to question whether there has been any change in circumstances. The debtor must issue a letter proving monthly disposable income to prove either way.

Debt Management Plan with Creditors

The second option is to negotiate a formal agreement with the creditor, known as a debt management plan (DMP). Again, this will involve the support of a debt counsellor. To use this option, the debt needs to be at least £5000, involve at least three creditors and the monthly repayments must at least £100. The payment is made to the debt management company who then shares it between the creditors. Often, it is the creditor with the largest owed that takes the biggest share.

Individual Voluntary Arrangement

An individual voluntary arrangement (or IVA) is an agreement made through a county court and often involves debts of over £15,000, as the cost of setting up an IVA for chasing an amount of any less would not be cost effective. The payment period is usually over five years.

Declaration of Bankruptcy

If the amount owed is £750 or more, the creditor may petition for bankruptcy. The bankruptcy period lasts for one year after which the debtor may make a fresh start but subject to restrictions. The debt is written off if it can be proved there are no assets or funds available to pay it off. The remaining assets are shared fairly between the creditors.

Debt Relief Order

The fourth option, the debt relief order (DRO) can be applied via the official receiver if the debts are under £15,000 and disposable income amounts to less than £50 per month. Owned assets must be small, less than £300, and car, valued at less than £1000. The debt is written off after a year’s period.

Will Asking the Creditor to Write Off the Debt Work?

The final option is to simply ask. The National Debline and Payplan debt advisers provide stock letters for debtors to issue to creditors. These ask for the debt to be written off or to be reduced if it has been proved that the debtor is simply unable to pay it back. Some creditors may agree to do this, but some may not. If the latter is the case, the debtor may invite the creditor to take the matter to court.

Getting Debt Written Off

Sorting out debt problems initially involves the consultation of a debt adviser. What follows is often a long line of correspondence between the creditors, the creditor’s debt collection agency, the debt counsellor and the debtor. The best thing to do is to consult the debt counsellor on the best option. Keep a record of all correspondence, and any unfair practices on the creditor’s part. This will not bode well for them if the matter goes to court.

photo credit: Pafcool2 from Wikimedia Commons