Government-Backed Solutions for You and Your Debt

Government debt help schemes and solutions

There are many debt solutions out there – how can you be assured that what you’re signing up for is the best?

One of the reassuring factors of some debt solutions is that they are recognised by law, offering protection and security to both you and your money whilst also allowing creditors the chance to get some of their money back too. Like many systems, however, there may be companies wishing to exploit the system, becoming a middleman between you and your creditors for their own monetary gains.

There are a number of government-approved solutions that are designed within particular guidelines. This means there are clear consequences if any party involved does not adhere to the conditions, so you and your money are protected by law.

Legal Vs. Informal

IVAs: In 1986 the Insolvency Act introduced IVAs as a solution which helps consumers meet a middle ground with their creditors. It confirms a commitment for some money to be back via one monthly payment and a promise from creditors that they will accept this, agreeing to write some debt off in return.

Furthermore, an IVA must be overseen by a licensed Insolvency Practitioner – this is an impartial 3rd party who will negotiate between you and your creditors, and ensure the terms of the IVA are stuck to.

Trust Deed (Scotland): Similar to an IVA, where you would pay towards your debts via monthly instalments. A ‘protected’ Trust Deed binds all of your creditors in the agreement, whereas ‘unprotected’ means that certain creditors may not be included and will continue to seek repayments separately from you.

Debt Relief Order: A DRO is an alternative debt solution for non-homeowners, which can see your creditors write off certain debts after a year. Only certain debts may be included in a DRO and it is an option designed for people with less than £30,000 who are struggling to make repayments each month. It is a formal solution, and your name will be included on the Insolvency register – there may also be serious consequences if you fail to declare crucial information.

Bankruptcy: This is an official court order, but is considered a last resort by most people and companies. If you go bankrupt, you declare that you can not repay back your debts, and your assets may be taken from you to be sold so that your creditors can reclaim a certain amount back. Your creditors have the option of making you bankrupt if you owe a certain amount and if it is approved by the court.

Debt Management Plan: As an informal agreement, a DMP leaves you in a far less secure position than other options. There is also no obligation for either party to stick to the plan, and so there is no protection for you if one of your creditors chooses to withdraw, which they can do at any time.

There is no set fee for a DMP, so providers are able to write their own fees into the plan – this can be as high as 50% of the money you are paying back each month. These amounts can go way beyond what is usually required to carry out the administrative tasks regarding your repayments and you may end up taking even longer to pay off the debts.

What Can You Do?

Before entering any solution, you should take time to do some research. With any proposal, fully read the breakdown of how your money is being handled and where it will be distributed – you can quickly determine whether certain providers actually have your best interests at heart if a large proportion of this is going towards their fees and not your debts.

One thing to be aware of is that there may still be bias from certain companies towards their products especially if they only seem to be offering one option. They may have more flexibility with the cost of fees that are being written into the arrangement and it may not even be a solution that matches your needs.

Here at Money Advice Ltd., we take an impartial approach – our debt experts have the tools and knowledge around debt solutions to support you whilst you make a decision that’s right for you.

Depending on your situation, we may be able to offer you further assistance in getting together an application, or if needed we can put you in touch with other trusted companies to help you on the way.