Insolvency LifeBoat Debt Solutions
How do I get out of debt?
Getting out of debt can be as straight forward or complicated as you want to make it. There are various different solutions you could qualify for that use government legislation to help you become debt free, which would enable you to reduce your monthly payments dependant on your circumstances.
Individual Voluntary Arrangement
An IVA (Individual Voluntary Arrangement) is an agreement whereby you pay your creditors a set amount each month that you can afford, the rest of the debt is written off. It’s most appropriate for those who have debts of more than £6,000 and cannot afford to meet repayments, who see missed payment charges incurred, interest increasing and their debt spiralling. However, the advisor will be able to shed more light on this and discuss whether it is the right option for you. We can tell you, without obligation, how best to get on a stable financial footing. Figures currently show that people in the UK have an average debt of £27,871.13 and no matter how much you are struggling, an IVA will help with your unsecured creditor payments you are struggling with.
What is an IVA?
An IVA can help you to resolve your unsecured debt without having to declare bankruptcy. All you need to have is a regular household income and live in England, Wales or Northern Ireland. An IVA (Individual Voluntary Arrangement) is a formal agreement between you and your creditors, the people to whom you owe money, to pay all or part of the debts you have with them. These arrangements are set up professionally by an authorised Insolvency Practitioner (IP) and as such there are professional fees that will have to be paid to enter into an IVA. An IVA will typically last for a five year period during which you will pay a percentage of your debt back. With an IVA in certain cases, you can have up to 75% of your debt written off.
All your unsecured debts will be consolidated into one, affordable monthly payment which can start from as low as £70.00 a month, dependant on your circumstances. This allows you to organise and take control of your finances by writing off the unaffordable debt and freezing interest. This has been a popular alternative to bankruptcy since the mid-1980s. The typical duration of an IVA is five years. In this time, you can start to make ends meat again and manage your money, knowing you are making a single affordable payment.
In summary:
- An alternative to bankruptcy.
- Guarantees Interest and charges froze.
- Stops creditors taking any further action.
In just a few steps from making the first call, you could be on the road to controlling your unsecured debt. Typically you should expect the process of setting up an IVA to take around six weeks. However, the main thing to remember about the process of getting an IVA is that the Insolvency Practitioners are there for you every step of the way.
Step 1
From the initial telephone call you will discuss how an IVA works, whether its right for you based on the information you have provided. If an IVA is right for you then paperwork will be sent out for you to read through carefully, complete the creditor commitment form with the details of the creditors of whom you owe money to, sign and date the letter of authority and send back straight away in the pre paid envelope provided along with the relative documents required which will be confirmed on the phone for you and also in the paperwork.
Step 2
On receipt of the paperwork where you will be called to confirm this, a brief questionnaire will be completed then your case will be referred to the Insolvency Practitioner, letters are then sent to your creditors to confirm that the company acting on your behalf will be proposing an IVA. Proposals are then drawn up to be sent to your creditors to set up the appropriate meetings for them to approve the IVA, but will be sent to you first to review, then sign and date and return back to the Insolvency Practitioners as soon as possible.
Step 3
The majority of your creditors will need to vote in favour of the IVA in order for it to go ahead. This means that creditors holding 75% of the total debt value must agree to your IVA. Once your IVA has been accepted you will be informed straight away. Your IVA then commences and your first IVA payment would be due within 6 weeks.
- Creditors who vote against your proposal are still bound by it.
- Creditors whose lending is unsecured can’t take any further action.
- Interest is usually frozen as long as you keep up your payments.
- Your insolvency practitioner will help you prepare your proposal, including agreeing the level of your household and personal spending based on guidelines acceptable to creditors.
- Many insolvency practitioners will allow you to pay their fees for preparing your proposal monthly, as part of the IVA.
- You make only a single payment each month or quarter. Your insolvency practitioner is responsible for administering and distributing your payments.
- The terms of an IVA will usually enable you or your spouse or partner or a relative to make arrangements to buy your share of the net worth of your home or to make extra payments, rather than the home having to be sold. This may be done through a remortgage or a loan. (Net worth means its value after any debts secured on it have been paid.)
- On completion of the IVA, the balance of what you owe your creditors is written off.
- You may be able to continue running any business you have.
- Your IVA is entered on a public register.
- The insolvency practitioner may require payment in advance for preparing your proposal and getting your creditors’ agreement.
- If there is some equity (value) in your home after taking account of the mortgage(s) on it, you will probably have to pay for your share, usually in the fifth year of your IVA, by remortgaging the property. If you can’t get a remortgage, you may have to continue making monthly or quarterly payments from your income, for up to another year.
- If your circumstances change, and your practitioner can’t get creditors to accept amended terms, the IVA is likely to fail. You will then still owe your creditors the full amount of what you owed them at the start, less whatever has been paid to them under your IVA.
- If your IVA fails, you may be made bankrupt.
We do not charge any setup fees for an IVA. Our associate partner Insolvency Practitioner’s will normally take a charge for their service out of your monthly repayments. This is known as the Nominee’s fee and a Supervisory Fee, along with other associated costs, which are born as a cost of your individual voluntary arrangement.
IVA fees will cover
- Agreeing a monthly budget with you.
- Drafting and preparing your agreement.
- Holding a creditors meeting and proposing your case.
- Dedicated account managers on hand to help with any questions/queries you may have throughout your IVA.
- Conduct annual reviews to ensure your circumstances haven’t changed, and distribute monies to your creditors.
- The nominee’s fee for setting up and agreeing the IVA with you and your creditors is normally a fixed fee. This will be taken before any payment is made to creditors. It is different to supervisor’s fees. These are normally on a percentage basis and spread over the duration of your IVA.
- You will never be faced with any unexpected fees as you will always be told what fees are involved and how they are calculated before you commit to an IVA.
- Creditor Voting Agencies apply the same fee basis for all IVA providers.
Before entering an IVA:
| Outgoing | Total |
|---|---|
| Personal loan A | £10,000 |
| Personal loan B | £5,000 |
| Credit cards | £8,000 |
| Total owed | £23,000 |
After entering an IVA:
| Outgoing | Total |
|---|---|
| Monthly Repayments | £180 |
| Total Debt Repayment | £10,800 |
| Total Debt Written off | £12,200 |
Still Have Questions?
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Trust Deed
A trust deed could make your debts affordable again, and write off the unsecured debt you can’t afford after three years. You’ll also be protected against further action from your lenders. A trust deed is an agreement with your lenders that could help you if you don’t think you can afford to repay everything you owe. You agree to repay as much as you can towards your unsecured debts – normally for four years – and at the end of that time, any remaining unsecured debt is written off. During your trust deed, you’ll also be protected against further action from lenders included in the agreement – so they won’t be able to make you bankrupt or demand higher payments.
What is a Protected Trust Deed?
If a trust deed becomes ‘protected’ if you receive approval from more than half of your lenders, or those accounting for at least one third of your total debt).
A protected trust deed is legally binding, meaning your lenders can’t change their minds or take any further action against you. At the same time, you are legally obliged to keep up with your payments.
In theory, a trust deed can go ahead without being protected, but it’s unlikely you’d be able to do this without your lenders trying to take alternative action. For this reason, all our trust deeds are protected.
The Trust Deed Process
Before your trust deed can start, an Insolvency Practitioners will put together a trust deed proposal. This tells your lenders why a trust deed is the best option for everyone involved, and shows your lenders how your trust deed will work (e.g. how much you can afford to pay each month).
This must receive approval from at least 50% of your lenders (or those owed at least one third of your total unsecured debt). If this happens, all other unsecured lenders will be included in the agreement, regardless of how they voted. In reality, as long as you genuinely can’t afford to repay what you owe, they are likely to agree.
From there, your usual unsecured debt repayments will be replaced with one affordable monthly payment. From this, the agreed amounts will be passed on to each of your lenders.
If you’re a homeowner, some of the money you’ve put into your home (your ‘equity’) may be released towards the end of the agreement to help repay your debts. This will not affect you if you rent your home. If you can’t release equity for any reason, your trust deed could be extended to help you repay more of what you owe.
You should also bear in mind that like most debt solutions, a trust deed will have an impact on your credit rating. Records will be visible on your credit history for six years after it starts, which will make getting further credit difficult during that time.
Reduce Hassle from creditors
Those unsecured creditors who agreed to the terms of your Scottish trust deed must alone once it is protected. Your Trustee will deal with all contact from your unsecured creditors, distributing your payments among them according to the terms agreed in your Scottish Trust Deed.
Interest and charges
All charges and interest arising from your unsecured debts within the Scottish Trust generally not applied as long as you abide by the repayment plan. If your trust deed is protected, even those unsecured creditors who object to the Scottish trust deed cannot instigate any proceedings against you either.
Financial stability in 48 months*
Your Scottish trust deed normally lasts for only four years, unlike normal debt that can feel like a permanent heavy weight on your shoulders for years on end. With a Scottish trust deed you know after four years that you will be discharged from the remainder of your debt and you can start again with a clean slate.
Only your disposable income will be used to pay creditors
While luxuries like gym memberships and holidays will not be allowed, your living expenses such as your rent or mortgage, bills, food and work-related travel costs will take priority in your Scottish trust deed budget. Your expenditure is assessed against agreed guidelines called the Common Financial Statement and our advisers will help explain what you can and cannot include in your budget. Your Trustee will reassess your income and expenditure at least once every year.
Able to negotiate
You may be able to negotiate to keep your home rather than sell it. This is a major fear of many people facing sequestration. Being made to sell a beloved family home and move to rented accommodation can be immensely upsetting. A Scottish trust deed can help prevent this from happening.
If you’re a business, carry on trading
If you own a company or are a sole trader, you can still carry on trading, although you may need special permission from the company if you are a director . You may even be able to obtain very small amounts of credit, unless the terms of your Scottish trust deed say that you cannot.
It will affect your credit rating
A Scottish trust deed will affect your credit rating. There is unfortunately no way to avoid this, although it is likely your credit record is already being affected if you have missed payments on your debts.
You may have to sell or remortgage
Granting a trust deed could mean that your house may be sold and you might have to move home, unless it is excluded under the legislation or you can make alternative arrangements. The exclusion terms are quite complicated and are set out in section 2.8 of the Accountant in Bankruptcy’s trust deed Guidance, but they generally apply only to your main residence if it has little or no equity. However, even if your property is not excluded you may be able to agree to make additional payments into your trust deed in lieu of the equity or arrange for a remortgage or third party contribution, so you have several options to avoid having to sell. You will not be expected to sell basic household items such as your TV and computer and you can keep your car if you need it for work and family purposes. The only exception to this is if the car is high value and you may be expected to downsize to something less expensive. If you pay into a pension, you may be required to reduce your payments or stop making payments until the Scottish trust deed is complete.
Only unsecured debts are covered
Only unsecured debts are covered by a Scottish trust deed, so any loans secured on your home or through hire purchase agreements are not covered.
It will be advertisied in the local press, but only could be found if someone knows look
When you grant your Scottish trust deed, it will be recorded on the Register of Insolvencies, which is a public record. Theoretically your friends, family or work colleagues may find out. However, it is highly unlikely they would unless they were specifically looking for the information.
Dont miss a payment!
If you fail to make a payment under your Scottish trust deed agreement without first contacting your Trustee for discussion and permission, you may find the trust deed fails and your unsecured creditors are entitled to pursue you for sequestration. It is sometimes possible to arrange payment holidays or to extend the timeframe of the Scottish trust deed in exceptional circumstances, so it’s important you let your Trustee know as soon as you think you might not be able to make a payment.
Don’t take out more debt!
If you run up any new debts in addition to those within your agreement, your new creditors will be able to pursue you for your new debts. Your existing Scottish trust deed does not cover debts incurred outside of the agreement. This is why it is extremely important for you to declare all of your debts to your Trustee at the beginning.
They are likely to agree as long as you genuinely can’t afford to repay your debts in full, although we can’t guarantee it. We always do our best to show lenders why a trust deed is the best option for everyone involved.
Not all your lenders have to agree to a trust deed. A trust deed involving all your lenders will go ahead as long as at least 50%, or those accounting for 33% of your total unsecured debt, agree. They may be more likely to agree if you are a homeowner.
This is because homeowners on a trust deed are normally expected to release some of the money they’ve put into their home (their ‘equity’), which helps to repay more of the debt. However, you won’t be expected to sell your home, like you could if you go bankrupt.
Most trust deeds last four years. However, in some cases your trust deed could be longer or shorter than this, depending on how things pan out.
For example, if you receive a large sum of money during your trust deed, you may be able to end it early by paying a final lump sum. Or if you have to take a break in your payments for any reason, your trust deed will normally be extended by the same amount of time. (Bear in mind that if you fail to complete your trust deed, it could lead to bankruptcy.)
And if you aren’t a homeowner or can’t release equity for any reason, the trust deed could be extended past the usual four years to help you repay more of your debt.
You may qualify for a trust deed if you meet the following criteria:
- You are based in Scotland.
- You have unsecured debts that total more than £6,000 that you can’t afford to repay in full within a reasonable period of time.
- You can still afford to make regular monthly payments towards your debts – but these will be reduced so that they fit alongside your other essential living costs.
We do not charge any setup fees for a PTD. Our associate partner Insolvency Practitioners will normally take a charge for their service out of your monthly repayments. This is known as the Trustee’s fee & Trustee’s Disbursements.
Here’s an illustration of a typical trust deed:
| Monthly payment | £220 |
| Total repaid over 48 months | £10,560 |
| Includes trustee’s fees | £4,150 |
| Total debt written off | £12,440 |
Illustrative example based on a typical client, who has no equity in their home, owing £23,000 of unsecured debt on a four-year trust deed. Fees include VAT where applicable.
Still Have Questions?
- Call 0161 3933316 for expert advice with no hidden fees
Bankruptcy
Sometimes there’s simply no way to repay what you owe in a reasonable time. If your debts are particularly high and / or your income is low, you may need to think about declaring yourself bankrupt. Like an IVA (Individual Voluntary Arrangement), bankruptcy is a form of insolvency: it’s a legal process that will share out your assets fairly among your creditors, protect you from further legal action and upon successful completion (normally after 1 year), write off your outstanding debt allowing you to make a new start.
Is bankruptcy right for me?
While it should be considered very carefully and as a last resort, bankruptcy is the best way out of debt for some people. It all depends on your situation – bankruptcy might be right for you if you:
- Have a limited disposable income.
- Don’t think your financial situation will improve in the short to medium term.
- Can’t repay your debt within a realistic timeframe.
- Own few assets.
- Have already considered other debt solutions.
Benefits of bankruptcy
- A ‘light at the end of the tunnel’ – a date when you know you’ll have repaid your debts.
- Upon successful completion you’ll have no further liability to your creditors – normally after 12 months.
- Peace of mind.
- Protection from creditors.
- A chance to make a new start when your bankruptcy is over.
What are the drawbacks of bankruptcy?
- Any valuable assets, including your home, may be sold so the funds can go towards repaying your creditors.
- You will not be able to work in some professions – as a company director or local government councilor, for example.
- Your bankruptcy will be advertised in newspapers.
- Bankruptcy is a formal, court-driven process.
- Bankruptcy will affect your credit rating for 6 years.
- Debts are written off, with certain exceptions explained below.
- Creditors can’t take further action unless the debts are secured on your home or other property.
- It allows you to make a fresh start after only a year.
- You may be able to avoid having to sell your home if your spouse, partner or a relative can buy your share of its value after any debts secured on it have been paid.
- Your bankruptcy is entered on a public register and is advertised.
- If you apply to the court for your own bankruptcy, you will have to pay a court fee and deposit totalling £705.
- You will remain liable to pay certain debts – in particular, student loans, fines, debts arising from family proceedings; and budgeting loans and crisis loans owed to the Social Fund.
- Any business you have will almost certainly be closed down.
- Your employment may be affected.
- Certain professionals are barred from practising if they are made bankrupt.
- You can’t act as a director of a company or be involved in its management unless the court agrees.
- You will be committing an offence if you get credit of £500 or more without disclosing that you are bankrupt.
- You may have a bankruptcy restrictions order* made against you for 2 to 15 years if you acted irresponsibly, recklessly or dishonestly.
You can apply for bankruptcy by filing a petition at the County Court – the district judge will decide whether or not to grant the bankruptcy. You’ll have to pay £700 (£525 Official Receiver’s deposit + £175 court administration fee). If you’re unemployed or on a low income, you may not have to pay the court fee when you apply for bankruptcy. This is called Voluntary bankruptcy. There’s also Involuntary bankruptcy: any of your creditors can petition for your bankruptcy if you owe them £750 or more. Alternatively contact us today and we will assist you in applying for your Bankruptcy Petition.
We do not charge a fee for our bankruptcy advice we can make all the forms available to you and help you book the appointment with the court to file for bankruptcy. Please speak to one of our plain speaking advisers to see if it’s suitable for you. The court and official receiver fees will need to be paid to the relevant authorities.
Still Have Questions?
- Call 0161 3933316 for expert advice with no hidden fees