When it comes to unmanageable debt, it’s impossible to say what will help in any particular situation. If your finances are becoming a real struggle, you should speak to an expert as soon as possible. If bankruptcy is a real possibility, it’s best to speak to an Insolvency Practitioner (IP).
Requirements
If your borrowing includes unsecured debt (e.g. credit cards, unsecured loans etc), which is owed to 3 or more lenders, and totals £15,000 or more, you may be able to use an IVA or Individual Voluntary Arrangement to alleviate it. If you have other debts that are secured (e.g. mortgage, secured loan etc) then other measures may be necessary to deal with those. However, if your unsecured debts make up a substantial part of your financial troubles, you may find that an IVA will be enough to get your total debt payments down to a level you can manage without having to worry about bankruptcy.
Process
If you do go for an IVA, this will involve making a proposal to your creditors, through which you will be offering to pay back a portion of the debt over a period of time. You will pay one payment to your IP, who will administer the IVA and handle the distribution of the funds to your various lenders. This means that you will no longer have to deal with the creditors directly, as your IP will handle the negotiations and any communication with them.
It is never guaranteed that your creditors will in fact accept your IVA proposal, but they will vote on it, and providing enough of them agree, it will go ahead and will cover all of the debts concerned. Even though you will likely only be paying back some of the debt, when the IVA is finished any outstanding balance will be disregarded and the debts will be effectively settled.
Payments
To use an IVA, you need to be able to make sufficient monthly payments. It is normally the case that these will not be less than £200, but this does depend on your situation. Your IP will work out a plan based on your income, outgoings, assets and debts. The proposal should always be something that you can realistically manage, and should not leave you so short that you cannot maintain a reasonable standard of living.
There are sometimes additional measures required in an IVA, such as releasing equity from your home. Sometimes creditors will request changes to be made to the proposal that has been presented to them, however in this case your IP should make sure you are kept informed and agree to any changes before anything goes ahead.
Future
If your IVA is accepted, and is successful, i.e. you manage to keep to the payments, it will offer you a very real chance to clear your debts. Rather than having your debts swept aside, you should think of an IVA as a way to renegotiate their terms and to settle them fairly, leaving you free to move forward with your life.