8. Other debt solutions:

Possible debt solutions available to you

  • Repayment Arrangement
  • Debt Management Plan (DMP)
  • Individual Voluntary Arrangement (IVA) (Not available in Scotland – see Trust Deeds)
  • Administration Order (not available in Scotland)
  • Debt Relief Order (DRO) (Not available in Scotland – see Minimal Asset Process)
  • Bankruptcy (Not available in Scotland – see Sequestration)
  • Debt Settlement

Scottish-only debt solutions:

  • Minimal Asset Process (MAP)
  • Sequestration
  • Trust Deed
  • Debt Arrangement Scheme (DAS)

Repayment Arrangement

A Repayment Arrangement is an informal agreement between you and your creditors in which you agree to repay what you can towards your debts until your finances improve. This arrangement is set up and managed by you and is a short-term solution to paying back your debts – your creditors can call off the arrangement and request full payments (with fees and interest) at any time.

A repayment arrangement in summary

  • You take responsibility of setting this up with your creditors and making the repayments
  • You can request interest and charges be frozen, but this is not guaranteed
  • Your credit score will be affected as payments will be lower than contractual amounts

Debt Management Plan (DMP)

A Debt Management Plan is an informal repayment arrangement between you and your creditors – but set up by a debt management company – in which you pay off all of your debt at a lower monthly amount than previously agreed.

A Debt Management Plan in summary

  • A DMP is set up and managed by a free or fee-charging debt management company
  • PayPlan do not charge for a DMP. You could potentially enter into a DMP with another company who have different criteria – Citizen’s Advice have some useful information on other providers.
  • You must still make payments to your priority debts whilst in a DMP – like your mortgage, council tax and any hire purchase agreements
  • A DMP isn’t guaranteed to be accepted by your creditors and even when it is, they can still request higher payments at any time and impose interest and charges

Individual Voluntary Arrangement (IVA) (Not available in Scotland – see Trust Deeds)

An Individual Voluntary Arrangement is a legally binding agreement between you and your creditors – but set up by an Insolvency Practitioner – in which you pay off your debts using your disposable income. You will need to complete an Income and Expenditure (I&E) before having an IVA approved, but you may find a significant amount is written off at the end of the IVA.

An Individual Voluntary Arrangement in summary

  • Pay off your debts – usually over 5 years, or 6 if you’re a homeowner – using disposable monthly income calculated from restrictions on expenditure and an I&E assessment with a debt management company
  • To be eligible for an IVA with our partners, PayPlan Partnership Limited or PayPlan Bespoke Solutions Limited, you must have at least £7,000 in unsecured debt, two creditors, and a disposable income of at least £50 per month
  • If creditors approve your IVA, you will then be listed on the Insolvency Register which is accessible by anyone – including potential lenders and employers
  • If your creditors agree to the IVA – they are not obliged to accept – interest and fees will be frozen and they will not be able to take legal action if you keep up with the new payment plan
  • You may have to release equity and contribute this to your IVA. If you adhere to the IVA terms and it doesn’t fail, you will not lose your home and car, as is the case in a bankruptcy.
  • Only unsecured debts included within the IVA will be discharged at the end of the term. You may also be required to remortgage, or extend your IVA by one year if this is not possible
  • An IVA will show on your credit file for six years from its approval date and this could affect your ability to borrow or work in certain professions

Administration Order (not available in Scotland)

An Administration Order is a debt solution issued by the County Court that enables you to repay unsecured debts, a County Court Judgement (CCJ) and a High Court Judgment against you that you cannot afford to pay. It is eligible for residents of England, Wales and Northern Ireland.

An Administration Order in summary

  • To be eligible for an Administration Order, you must have at least two creditors you owe money to and at least £5,000 in unsecured debt and at least one County Court Judgement (CCJ) or High Court Judgement that you cannot afford to pay in full
  • An Administration Order is legally binding and arranged by the County Court, who will review your income and expenditure and agree an affordable monthly amount for you to repay to your creditors on a pro-rata basis over a longer period
  • An Administration Order will remain on your credit file for 6 years, but creditors will not be able to impose further charges on your account if you keep up with the agreed repayments
  • There’s no upfront fee for an Administration Order, but the court will usually take 10% of the amount paid to cover its cost

Debt Relief Order (DRO) (Not available in Scotland, see Minimal Asset Process)

A Debt Relief Order is a simplified version of bankruptcy that you can apply for without having to attend court through an approved intermediary. Debts listed in the DRO are written off one year after it’s approved, and creditors will not be allowed to chase you for funds.

A Debt Relief Order in summary

  • To be eligible for a DRO, you must have an unsecured debt level lower than £30,000. You must also have assets that do not exceed £2,000, a vehicle worth less than £2,000, and monthly disposable income of under £75
  • You will need to pay a fee of to set up a DRO and once this is approved it will appear on your credit file for 6 years, as well as on the Individual Insolvency Register
  • If, during the 12 month period of a DRO, you receive assets and/or your surplus income increases to above the threshold, the DRO would be terminated, your fee will be reimbursed and you will continue to owe the debt in full
  • Whilst a DRO is in place, you cannot act as a company director and it may have an impact on your ability to work in certain professions

Bankruptcy

Bankruptcy is a form of insolvency which normally lasts for a year, after which time all the debts included in your bankruptcy are written off. If you have disposable income that can be used to pay off your debts, you may be expected to make payments into the bankruptcy for up to three years. After being declared bankrupt, you will no longer be liable for your unsecured debts and the creditors cannot apply any further interest or charges to your account.

Bankruptcy in summary

  • To declare yourself bankrupt, you need to complete an online form on the Insolvency Service website and submit this, together with the mandatory fee of £680.00 – this can be paid in instalments but you will not be made bankrupt until the full fee of £680 is paid.
  • An Official Receiver/Trustee will be placed in charge of your Bankruptcy and they will be able to advise whether assets such as a house or car be sold in order to raise funds to repay the debts. Any assets of value will be at risk of being sold in bankruptcy.
  • You will be required to continue paying your priority, secured debts and should be aware that your pension may be affected if your Official Receiver feels you have made significant contributions to it in the leadup to your bankruptcy
  • Bankruptcy appears on your credit reference file for 6 years from the date it was made. It is published in the London Gazette, and will then appear on the Individual Insolvency Register for the duration of the bankruptcy
  • You will find it difficult to borrow as lenders will be notified of your bankruptcy – you will not be able to obtain credit of £500 or more without disclosing that you are an undischarged bankrupt

Debt Settlement

A Debt Settlement is a lump sum payment that you offer to some or all your unsecured creditors to settle your outstanding debts. You can offer a full and final settlement or a partial settlement – you may wish to do so if you’ve come into some money via an inheritance or other windfall.

A Full and final Settlement in summary

  • In a full and final settlement, you will offer to pay your creditor the full balance (including any interest and charges that have been applied) in order to settle your account
  • This amount may have come from a windfall, such as an inheritance
  • If this settlement is accepted, your debt will be classed as ‘satisfied’ on your credit report
  • A full and final settlement shouldn’t have a negative effect on your credit score, although any missed or reduced payments will still be shown on your file

A Partial Settlement in summary

  • In a partial settlement, you will offer to repay some or all your creditors less than the outstanding amounts but in an early settlement of the debts
  • Short settlement offers are more likely to be accepted if you can demonstrate that you have little or no disposable income with which to make regular repayments
  • A partial settlement will appear on your credit file and could affect your ability to borrow in the future as lenders will be able to see you didn’t pay back the full amount you owed

Scottish-only Debt Solutions

Minimal Asset Process

Minimal Asset Process (MAP) is a debt solution that can write off debts after 6 months. To be eligible, you must either have been solely on benefit income for at least 6 months and/or have been assessed as having no available money with which to pay your creditors each month.

Minimal Asset Process in summary

  • To apply for MAP, there is no fee however you must have unsecured debts of at least £1500 but not exceeding £25,000
  • The total value of your assets cannot exceed £2,000, with no single asset being worth more than £1,000. If you own a car, this must be valued at less than £3,000
  • Once a MAP has been approved, your creditors cannot chase you for payment or add interest and charges
  • A MAP will remain on your credit file for 6 years from the date of award and could affect your ability to work in certain professions or privately rent from some landlords

Sequestration

Sequestration is a debt solution that can write off debts after one year from its agreement. To be eligible, you must have unsecured debts of more than £3,000 and cooperate fully with a trustee throughout the arrangement.

Sequestration in summary

  • You will need to pay an upfront fee of £150 before entering into a sequestration
  • Although sequestration lasts for one year, you may have to make payments of your available surplus income to your creditors for up to 4 years once the Sequestration has been awarded
  • Sequestration can affect your assets – such as your home or car – and your ability to work in certain professions. You will not be able to borrow any more than £2,000 before you’re discharged
  • Your Trustee can request you sell a vehicle worth more than £3,000 in order to raise funds to settle some of your debt, as well as pay in any bonuses/windfall from your job
  • Sequestration will remain on your credit file from 6 years from the date of its award

Trust Deed

A Trust Deed is a voluntary agreement with your creditors to repay part of what is owed to them. This arrangement usually lasts around 4 or 5 years and after this period you will be discharged and no longer be liable for the debts included in the Trust Deed.

A Trust Deed in summary

  • To be eligible, you must owe at least £5,000 and have a minimum of £50 disposable income after paying essential household living costs and bills
  • If your Trust Deed is agreed, interest and charges cannot be added to the debts included in your Trust Deed, nor can the creditors included chase you for payments or take you to court
  • Only debts included in your Trust Deed will be discharged and you will still need to pay any other debts including priority debts
  • A Trust Deed will have an adverse impact on your credit rating and will remain on your credit file for 6 years from the date of signing
  • If you do not adhere to the terms of the Trust Deed, you may be made sequestrated. Expenditure is restricted in a Trust Deed, and only unsecured debts included in the arrangement will be discharged at the end of its term

Debt Arrangement Scheme

A Debt Arrangement Scheme (DAS) is a debt solution that allows you to repay your creditors in full, in smaller instalments than your contractual ones.

A Debt Arrangement Scheme in summary

  • You must have one or more debts you’re defaulting on, as well as an available surplus income with which to repay your creditors
  • There is no time limit to repay your debts in a Debt Arrangement Scheme – the agreement will remain in place until your debts have been repaid in full
  • Interest and charges are frozen on the debts included in a Debt Arrangement Scheme and your assets – such as your home or car – are protected from your creditors if you maintain your repayments
  • Your credit rating will be affected and the DAS will be on your credit file for the term of the arrangement. Default notices can still be applied and will remain on your file for six years