UK consumers are in urgent need of financial help. According to Credit Action, a leading money education charity, the average amount owed by each adult at the end of April 2009 on credit cards, motor and retail finance, personal overdrafts and unsecured loans stood at £4,850. The amount of personal debt actually grew by £1 million every 100 minutes.
What Sources of Financial Help Are Available?
It is possible to become debt-free with an Individual Voluntary Arrangement (IVA), Debt Management Plan (DMP), Debt Relief Order (DRO) or by filing bankruptcy. The source of financial help chosen will largely depend on how serious a personal debt problem is. Whilst all these solutions will help a consumer to become debt-free, some write-off debt and others will seek to manage it.
Filing Bankruptcy Can Help Overcome Serious Debt Problems
Following the introduction of the Debt Relief Order (DRO), filing bankruptcy is only suitable for those with personal debt exceeding £15,000. The introduction of the Enterprise Act means that a debtor can become debt-free in just 12 months. News of insolvency is made public and it isn't a suitable debt solution for homeowners. This has resulted in many debtors opting for an Individual Voluntary Arrangement (IVA).
Become Debt-Free with an Individual Voluntary Arrangement (IVA)
Financial help for personal debts over £15,000 is available in the form of an Individual Voluntary Arrangement. It is a legally binding agreement where the creditor agrees to write-off debt in return for a reduced monthly dividend from the debtor for a period of 60 months. An IVA is a solution to serious debt problems and is the primary alternative to filing bankruptcy. It is normally opted for by homeowners.
A Debt Relief Order (DRO)
The Debt Relief Order (DRO) was introduced in April 2009 to provide financial help to low income families with personal debts under £15,000. It provides a more affordable, less complicated alternative to filing bankruptcy. The debtor's assets must not exceed £300 and any disposable income should be less than £50 pcm. Those with more modest levels of debt should consider whether to pursue a DRO or a Debt Management Plan.
Debt Management Plan (DMP)
Whilst a Debt Management Plan (DMP) doesn't result in a debt write-off, it helps a consumer to manage the money they owe. Although only a voluntary agreement, a number of creditors will freeze interest payments and further charges. It can take a while to become debt-free, but it will help to stop unwelcome creditor contact.
Consumers with personal debts in excess of £15,000 should normally consider filing bankruptcy or an Individual Voluntary Arrangement (IVA). Those with more moderate debt problems may wish to pursue a Debt Relief Order (DRO) or a Debt Management Plan (DMP). It is always sensible to seek financial help from a qualified debt counsellor before proceeding.
Sources
Credit Action - June 2009
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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