Individual Voluntary Arrangement (IVA)

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between an individual and their creditors. This solution allows a person to only repay a percentage of their unsecured debt to their creditors in affordable monthly payments, usually over a five- or six-year fixed term. If you don’t have a lump sum of money or regular amounts to pay into an IVA, you should check other options for getting out of debt. 

Advantages

• Legally binding on your creditors.
• Prevents further legal action.
• Freezes all further interest and charges.
• Usually, creditors write off some of their debt.
• You will keep your property if you are a homeowner.
• Procedures are available to take account of changed circumstances.
• It will generally allow you to continue to trade if you are self-employed. In most circumstances, you can continue acting as a limited company director.
• It is overseen by an insolvency practitioner who is highly regulated and fully insured.
• Highly flexible and can include a lump sum in full and final settlement with potential completion of the IVA in a matter of months.

Disadvantages

• You will typically pay into an IVA for two more years than a bankruptcy.
• Your credit record will be adversely affected until one year after the successful completion of your IVA.
• Your details will be entered into a register that can be accessed online.
• If you receive unexpected money during the IVA, such as an inheritance or a PPI refund, you must pay the proceeds into the IVA.
• If you are a homeowner, you will be asked to attempt to release equity into the IVA in the last year.

Protected Trust Deed (PTD)

A Trust Deed is a voluntary agreement between you and the people you owe money to (also called your creditors). You agree to pay a regular amount of money towards your debts, and at the end of a fixed time, the rest of your debts will be written off.

All your assets are passed to someone looking after your financial affairs. They are called your trustee. The trustee aims to pay your creditors as much as possible of their debt. This may involve some of your belongings or property being sold so that the money raised can be paid to your creditors.

A Trust Deed can become ‘Protected’ if the majority of creditors are happy with the terms of the trust deed. This means that the trust deed is binding on all creditors, and they cannot take any steps to recover the money owed to them. If a Trust Deed is not ‘Protected’, then it will not be binding on all of your creditors, and they could still take action to recover the money you owe them.

A Trust Deed may be suitable if you have:

• Debts totalling £5,000 or more.
• Enough money to make regular payments towards your debts. You can’t set up a Trust Deed if your only income is from benefits.
• Belongings and property such as savings, investments, a car or a house. These can be sold so the money raised can be paid to creditors.

Advantages

• No contact from people you owe money to – your trustee will deal with those you owe money to (your creditors).
• No more enforcement action – if you are thinking of setting up a trust deed, you can apply to the Accountant in Bankruptcy to stop your creditors from taking any steps to recover the money you owe them, such as arresting your bank account. This is called a ‘moratorium’, lasting 6 months.
• Ability to pay bills – you don’t have to show that you cannot pay your bills as they fall due. This is sometimes called ‘apparent insolvency’. You have to be able to show this to apply for bankruptcy (called sequestration in Scotland).
• Employment and public office – you are not barred from certain types of employment or public office as you would be under bankruptcy (called sequestration in Scotland).
• Borrowing money – you are not legally stopped from borrowing money (obtaining credit) like a mortgage or a credit card, although this may be difficult to get in practice.
• Debts are written off – your Trust Deed usually ends after 4 years (called discharge). Most of your debts will be written off, and you will not have to repay them.

Disadvantages

• Paying regular contributions – you must pay contributions towards your debts for at least 4 years.
• Credit rating – having a trust deed will affect your credit rating for 6 years from the date the trust deed begins. This can make it harder to get credit like a mortgage or a loan in the future.
• Selling your belongings and property – you may have to sell some of the things you own (your assets) such as your home.
• You can’t be a company director – you can’t be the director of a limited company unless the terms of your trust deed allow it.
• Self-employment – you might not be able to carry on running your own business. The trustee might arrange for someone else to run the business or they might sell the business.
• Windfalls or property – if you receive any windfalls or property within 4 years of the start of your Trust Deed, these can be claimed by your trustee. Examples include PPI compensation or an inheritance.
• Cooperation – if you don’t cooperate with your trustee, they can apply to make you bankrupt.

Advantages

• Your payments are reduced to an affordable amount based on what you can afford.
• A DMP is flexible, meaning you can choose who to include and change your payments if required.
• You avoid entering into a formal insolvency solution
  You may be able to retain assets that could be at risk in other solutions.

Disadvantages

• There is no guarantee that creditors will agree or freeze interest and charges.
• There is no protection from any legal action your creditors might take.
• You may repay your debts over a longer time frame.
• Your credit rating could be affected for as long as it takes to clear the debts

Bankrupty

• Bankruptcy is a formal way of clearing your debts if you have no alternative.
• Suitable for individuals residing in England, Wales & Northern Ireland

Advantages

• You will no longer have to deal with your creditors.
• Your creditors cannot take any action against you once you are declared Bankrupt.
• The application is made online and costs £680; however, this can be paid in instalments.
• It typically lasts for 12 months, after which your debts are written off, providing you with a fresh start.

Disadvantages

• Your credit rating will be adversely affected for 6 years.
• The official receiver will take control of your assets, and they may be sold to repay your creditors.
• If you can afford it, you may be asked to pay into Bankruptcy for up to 3 years under an Income Payments Order (if your income is solely benefits, this will not be required).
• Your details will be recorded on a public register

Debt Relief Order (DRO)

• A Debt Relief Order is an agreement designed for people who can’t afford to repay their debts.
• You must have a debt level of £50,000 or less, assets worth less than £2,000 (a vehicle worth less than £4,000) and show affordability of less than £75 per month.
• Suitable for individuals residing in England, Wales & Northern Ireland.

Advantages

• It is a formal insolvency solution, so you will no longer have to deal with your creditors.
• Your creditors cannot take any action against you once you have entered into a DRO.
• Your debts will be written off after 12 months as long as your circumstances don’t improve.
• You will not be required to make any payments towards your debts

Disadvantages

• Your credit rating will be adversely affected for 6 years.
• Your details will be recorded on a public register.
• You cannot do a DRO if you have had one within the last 6 years.
• If you have a change of circumstances for the better within 12 months, your DRO will be revoked

Other Scottish Debt Solutions