Credit Repair You Can Do Yourself

The UK 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.

For many bankruptcy seems like the only option, a course of action that whilst it does mean your debt can be wiped clean in as little as a year, can for some lead to unemployment, the loss of a home, and in some cases long term inability to obtain 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 administered by a licensed Insolvency Practitioner (IP). The IP must secure agreement from 75%, 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.

The aim of an Individual Voluntary Arrangement is for the individual to repay what they can now afford, rather than what they were contractually obliged to pay under the original loan, credit card, and finance agreements they had. They are also not made public as bankruptcies are, and so afford some privacy, and do not require employers to be informed or place restrictions on company directors, or professional qualifications. However an IVA is only an option if you have at least fifteen thousand pounds in unsecured debts, and after completion of the Individual Voluntary Arrangement it will show on your credit file for up to six years so you will probably struggle to obtain credit for up to 11 years from the date of taking the Individual Voluntary Arrangement out. 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 on 6th April 2009 as an alternative to an Individual Voluntary Arrangement or bankruptcy, for non homeowners, with little or nothing in the way of assets, and relatively low income and debt. A DRO gives similar legal protection to an Individual Voluntary Arrangement 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 informal agreements between individuals and their creditors, with the view to reducing the amount paid by the debtor each month. By their nature DMPs can take many forms, but there are a number of specialist debt management companies and charities that specialise in helping individuals set up Debt Management Plans with their creditors.

Whilst as an informal arrangement a Debt Management Plan offers no legal protection for the debtor, the fact that they are at least attempting to repay the debt will often mean that debtors do not pursue legal enforcement action.

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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