3 Powerful Alternatives To Personal Bankruptcy

Britain is drowning in personal debt. Figures from Credit Action, the national money education charity, suggest that as of July 2010 the UK's total personal debt stood at almost £1.5trillion, or to put it another way, individuals now owe more than the country as a whole produces in a year. Not only that but it would appear we're finding it increasingly difficult to deal with our debt, according to Citizen's Advice they're handling 9,000 new free debt advice cases every day.

Bankruptcy may seem like the only option for many, but personal bankruptcy can for some mean the loss of the family home, the inability to continue in a profession, and potentially a long term inability to obtain mainstream credit. But are there any alternatives?

Individual Voluntary Arrangements (IVAs): IVAs are a form of legally binding agreement between an individual and their creditors. The aim of an Individual Voluntary Arrangement is to agree a formal arrangement between an individual and their creditors, for the individual to make, and stick to, reduced monthly repayments, based on what they can afford, rather than the amount owed by them. In return all creditors will agree to cease all further legal action to recover the debt, as long as the terms of the arrangement are met by the debtor. Because an IVA is a legally binding agreement, and comes under the legislation of the Insolvency Act, it must be setup and managed by a licensed Insolvency Practitioner (IP). The IP must secure agreement from three quarters, in value, of the individuals creditors for the Individual Voluntary Arrangement to come into effect.

Individual Voluntary Arrangements are designed to cover a 5 year period, after which, as long as the debtor has complied with the terms of the arrangement i.e. they have made their payments as agreed, and cooperated with regular reviews of their circumstances, then any outstanding debt will be written off by their creditors.

Individual Voluntary Arrangements are limited to individuals with more than £15,000 of qualifying debt, but payments are based on the amount the individual can afford, rather than the amount they owe, and so can greatly reduce monthly outgoings, they also mean that the individuals IP will deal with their creditors, and both these factors can relieve the amount of stress the debtor is under. However an IVA will show on the debtors credit report for up to six years after the IVA has completed and so can impact on their ability to obtain credit for up to eleven years from the date of the arrangement being agreed. Despite this one of the key attractions of an Individual Voluntary Arrangement for many is that, unlike bankruptcy it is not advertised and remains private and so employers and other third parties are not informed. As a legally binding agreement it is advisable to gather as much IVA information as possible and seek professional advice as early as you can, to asses if this is a suitable option for your circumstances.

Debt Relief Orders (DROs): Debt Relief Orders were introduced in April 2009 as an alternative to an IVA or bankruptcy, for non homeowners, with little or nothing in the way of assets, and relatively low income and debt. A Debt Relief Order gives similar legal protection to an IVA and prevents enforcement by creditors, but usually lasts only 12 months and does not involve any repayment of debt.

Debt Management Plans (DMPs): DMPs are an informal form of agreement, and so do not follow any prescribed form. In general they are an agreement for an individual to pay a reduced amount to each creditor, and in this respect are similar to an IVA, however not being a legally binding agreement there is no guarantee that interest and charges will be frozen by creditors. Debt Management Plans can be setup by the individual themselves but are often setup via debt management company or debt charity.

Less scrupulous Debt Management companies may offer guarantees that interest, charges and legal action will be stopped by entering into a debt management plan, however in reality a Debt Management Plan is an informal arrangement and so can guarantee no such legal protection for the debtor. However in many cases creditors will be flexible in order to guarantee some form of repayment.

A debt management company will normally retain all or some of the first few payments as a setup charge for the Debt Management Plan, as well as an ongoing charge each month. Though many people find this an acceptable consequence of not having to deal with their creditors themselves.


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Just Clear My Debts is dedicated to helping UK individuals find powerful sources of free debt advice on a range of subjects from credit card debt to specific debt solutions such as debt managment plans and IVA information.