There are many solutions for dealing with problems of personal debt but in the UK or specifically in England, Wales and Northern Ireland, the top seven solutions probably account for over 98% of solutions. The legislation in Scotland is somewhat different to the rest of the UK so it is excluded from consideration for the purposes of this article.
In no particular order, the seven solutions can be summarized as follows:
Firstly, you can seek to reach a negotiated agreement between you and your creditors to repay some or all of your debts. This is sometimes called a self administered debt management plan where you do all the negotiations with your creditors without the assistance of a third party.
Secondly, you can seek to reorganize or clear your debts by obtaining a loan from a lender. This is sometimes called debt consolidation where you clear all or most of your debts from the funds borrowed in a single new loan. Now you usually have just one debt to service.
Thirdly, you can engage the services of a debt management company to negotiate with your creditors on your behalf and to manage your payments to them. This is usually called a Debt Management Plan or a DMP.
Fourthly, provided your debts total no more than £5,000 and are owed to at least two creditors and provided that you have a court judgment entered against you by one of those creditors that you cannot pay in full, you can ask the court to make a County Court Administration Order, known as a CCAO. Under such an order you make weekly, monthly or quarterly payments to the court, which shares the funds among your creditors in proportion to the amounts you owe them.
Fifthly, provided that you are insolvent and have regular income or assets or both, you can engage the services of an insolvency practitioner to prepare, negotiate and administer an arrangement for you to voluntarily repay your creditors some or occasionally all of the monies you owe them. Such an arrangement is called an Individual Voluntary Arrangement or an IVA.
Sixthly, if you have a low income, assets of no more than £300 and debts not exceeding £15,000 in total, you can, without going to court, on payment of a fee of £90, seek for a Debt Relief Order (DRO) to be made and if granted, your debts will be cleared in twelve months, without your having to make any further payments.
Finally, if none of the six solutions above are suitable for your circumstances, then the seventh option in this shortlist may appeal to you. This of course is bankruptcy, which can be initiated by you or indeed by one of your creditors to whom you owe at least £750. Your assets are sold and you may also have to make payments from your surplus income for up to three years, to help clear your debts.
Each of these solutions has some merit but they differ very much from each other. The best option for you will depend on your own personal preference, your current and future circumstances and those of your family. The amount you owe, your income and your assets will also have a major bearing on which options are available to you. To help you to decide, you should look up the website of The Insolvency Service where you can find a publication entitled ‘In Debt – Dealing with your Creditors’. This provides a detailed summary of the pros and cons of each solution and it compares and contrasts the various solutions with each other. It also provides contact details for various government funded advice agencies where you may obtain free advice.