There has been a rise in the number of people who have requested debt advice since the recession began in 2008.
The type of person now requiring debt advice could be anything from unemployed to working as a company director.
Anyone from any walk of life could find themselves suddenly needing debt advice to resolve their financial problems.
Which debt solution you are suitable can depend on a range of factors such as location, level of debt, employment and much more.
It’s important to seek debt advice before entering any solution, it will also give the debtor the chance to ask questions about your debt.
These are all the debt solutions which can help resolve any financial problem and the criteria for entering them.
Some debt solutions don’t have any criteria for entering them while others are very specific.
Debt Management Plan
A debt management plan is the perfect debt solution for anyone who is able to repay their debt within a reasonable time period.
Usually any debt management plan which is longer than 8 – 9 years long isn’t the most suitable debt solution.
It’s an informal solution which means it can be changed by either the debtor or creditor, which means further action could be taken.
Interest and charges are not guaranteed to be frozen which means the debt could still increase in the solution.
Criteria To Enter Debt Management Plan
Anyone with debt can enter a debt management plan, however some of the organisations who run it for free will ask it is above a certain amount.
Companies who charge a fee for running the debt management plan will likely accept any level of debt. The cost will mean most debtors will be better dealing with creditors on their own.
Debt Arrangement Scheme
A formal debt solutions which is similar to a debt management plan and guarantees to freeze interest and charges.
Because it’s a formal solution it cannot be changed by creditors which protected the debtor from further legal action, so long as payments are maintained.
Criteria To Enter A Debt Arrangement Scheme
- Only people living in Scotland are eligible to enter a debt arrangement scheme
- A qualified money advisor needs to help complete the forms
- It’s also important a reasonable amount of disposable income can be paid towards the debt
A individual voluntary arrangement (IVA) is an insolvency debt solution which has helped thousand of people avoid bankruptcy.
While people will write of a percentage of their debt in an IVA, they typically repay more than in a bankruptcy.
This means it’s not as severe on their credit rating, will help protect assets such as property and helps creditors receive more money back.
In an IVA the debtor will make a monthly contribution towards the debt for 5 years at the end of which any remaining debt will be written off.
The debtor will need an insolvency practitioner to put their proposal to their creditors who can either accept or reject it.
Once the IVA has been accepted it become a formal solution which legally binding and cannot be changed by creditors.
However failure to continue with payments or continuous defaults by the debtor could force the insolvency practitioner to cancel the IVA.
Creditors are much more likely to petition for bankruptcy if an IVA has failed and the debt remains unpaid.
Criteria To Enter An IVA
- Debt Should Be Above £10,000: Usually anything less will make a debt management plan more suitable
- Disposable Income Above £150: Without having a disposable income making contributions isn’t possible and the IVA won’t be accepted
- Reside in England, Wales or N.Ireland: People who live in Scotland or outside the UK are not eligible to an IVA.
Protected Trust Deed
A formal solutions which is often considered the Scottish version of an IVA although it does have some key differences.
A monthly contribution is paid for 4 years and any remaining debt is written off at the end of the solution.
A protected trust deed is a legally binding solution which means creditors are unable to change it once the proposal has been accepted.
All interest and charges will be frozen so the debt won’t increase while the solution is being run.
In a trust deed an insolvency practitioner will put the proposal to the creditors who can choose to accept or reject it.
Criteria To Enter Protected Trust Deed
- Reside in Scotland: Only people living in Scotland are eligible to enter a protected trust deed.
- Debt Should Be Over £10k: Anything less is likely to make a debt management plan more suitable. Although it doesn’t mean a debt management plan isn’t suitable because a debt is above £10,000.
- 10% of the Debt Must Be Repaid: 10% of the total debt must be repaid to the creditors.
When all other solutions have been explored and are not suitable the last resort is often bankruptcy.
There are different routes to enter bankruptcy including debt relief order and creditor petitions.
The standard route into bankruptcy costs £700 and needs just two forms to be completed, which can be collected from a local county court.
A debt relief order was introduced to help people with less than £15k debt, no more than £50 a month disposable income and no assets worth more than £300.
Creditors can also apply to have a debtor declared bankrupt and often do if they believe the person in debt has assets such as a property with equity.
Criteria To Enter Bankruptcy
- The debt must be £750 or above
- The correct forms must be completed
- The bankruptcy fee must be paid
- Living in England, Wales and N.Ireland
Before entering bankruptcy it’s important to get good debt advice and be sure it’s the best solution.
Anyone entering bankruptcy with assets such as a house which has equity will risk losing it by entering the debt solution.
The Scottish version of bankruptcy which should only be considered as a last resort to resolving debt problems.
There are different routes to entering sequestration including, LILA, certificate of sequestration and more.
A debtor can apply to be declared sequestrated either though applying for a LILA or a certificate of sequestration.
Criteria To Enter Sequestration
- Debt Level: The debt must be a minimum of £1,500
- Insolvent: The debtor will need to show they are insolvent and unable to repay the debt
A LILA (low income low asset) route into bankruptcy is only suitable for people earning less than £247.60 per week (based on 40hr week). A debtor can’t own any property or total assets worth more than £10k or a single asset worth £1,000.
Whether it’s to get help applying for a mortgage or starting a pension, financial advice has extremely important.
Almost every financial product now needs a financial advisor to help get the best possible deal.
Despite the credit crunch and the lack of mortgages being approved by banks, financial advisor’s have become even more important in getting a good mortgage.
A simple conversation with an advisor could help with getting a cheaper rate, longer fixed term deal and more.
An advisor will assess an applicants income, expenditures, debts and credit rating to advise the best route to apply for a mortgage.
Pensions are often something people will ignore when they are young but the sooner contributions are made, the more money will be available when they retire.
Changes to pensions over the past few years have meant a lot of people are paying into a substandard scheme.
A pension advisor will be able to assess your current deal and possibly find one better suited to you.
If you are currently not paying into a pension a financial advisor will be able to find you the best pension for your financial circumstances.
Writing a will can seem complicated and often people believe it’s more expensive than it actually is.
Will writing is a sensitive issue which must be handled with care and getting the best possible advice is essential.
A financial advisor can make sure you are not paying an extremely high price to leave money to your loved ones.
Before investing it’s important to get financial advice which is independent, trust worthy and legally sound.
Many people have found out the hard way the dangers of investing into a company, shares, etc can be catastrophic.
A financial advisor can tell you the best way to invest, which kind of investments are worthwhile and risks involved in certain investments.