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Debt Management   IVAs   bankruptcy   Debt Consolidation

Debt Management

If you owe more money on UNSECURED debts than you can realistically afford to repay and you have few assets then you may want to consider a debt management plan. This involves a trusted intermediary taking a careful look at your finances, working out how much you can reasonably afford to repay monthly and then negotiating with your creditors to try to agree an end to legal action, a halt to interest charges, a reduced monthly payment and perhaps a reduction in the sum that they will claim from you. You then make monthly repayments of an agreed sum into a special account until your debts, or an agreed proportion of your debts, have been paid off and the debt management company distribute this amongst your creditors.

The advantage to you is that subject to your creditors' agreement you could get a breathing space and a chance to pay your debts, or part of your debts, over a more comfortable length of time which could perhaps also give you a chance to sell some of your assets at a speed that suits you better, rather than have a forced sale at much lower prices. You would not have the severe damage to your credit rating that a bankruptcy or IVA would cause and, subject to negotiation, the creditors may well agree to this if they can be shown that they will end up with more this way than if they pressed too hard and you had to consider bankruptcy or an IVA. Many would consider this the 'least unpleasant' option but nevertheless there are drawbacks, as ever. 

The benefits

  • You would be working with a debt management company you had chosen to deal with, rather than having a trustee or the Official Receiver's office imposed upon you.

  • Everything would be up for negotiation, including your monthly repayments, and the fate of your home and assets like cars, furnishings, valuable personal effects etc, rather than having then arbitrarily subject to seizure by a bailiff or bankruptcy trustee.

  • Yes, your credit rating would be adversely affected but not nearly so much as by a bankruptcy or IVA.

  • You would not have to worry about losing your job - many employment contracts contain clauses which demand the resignation of emplyees who are bankrupted.

  • Your friends, neighbours and employers need never know what has happened.

  • Harrasment from courts and bailiffs should come to an end

  • You have to make only one payment a month rather than several, which can help budgeting.

  • You do not have to go to court.

  • The arrangement is flexible so that if you fall on hard times (or much better times!) your commitments could be re-negotiated.

The drawbacks

  • One or more of your creditors may not agree to a proposed solution.

  • If they do agree they may insist, as a condition of agreement,  on eventual payment of their loan in full including accrued interest.

  • If you own a house they may insist on it being sold immediately and some of the proceeds used towards settling their loan as a condition of agreement.

  • The debt management company will charge a fee, typically at least 15% of the total sum you pay into the fund which is either paid by you (the 'fee based option') or by your creditors (the so-called 'free option'). Either way the money comes out of your payments.

  • Another creditor can come along and start proceedings against you independently.

  • The programme can go on for several years.

  • If you have not agreed a stop to interest charges these can continue to accrue and you could end up owing even more money.

Conclusion

You may, or may not, agree with my opinion that this would be a suitable approach for you if you had few assets or little equity in your home but were genuinely willing and able to pay off all your debts provided that you were allowed more time.

 

Debt Management   IVAs   bankruptcy   Debt Consolidation

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