A guide to debt
What Is Debt Management? What Is An IVA? Find out more here!
Debt Management is just that. We manage your debts on your behalf. By finding out how much you can realistically afford to pay creditors, we negotiate on your behalf to have payments reduced to a more affordable level.
This may be the solution if you:
- Are struggling with your debts
- Have unsecured debts over £2,500 (including personal loans, excluding debts to your family/friends)
- Have two or more separate creditors
- Have credit card, store card or catalogue debt
- Have a bank overdraft
- Have default notices or CCJ's
What does debt management mean for me?
- You won't have to borrow more money – we work with the income and debts you have to provide an affordable debt management solution that is unique to you.
- You'll be able to maintain a reasonable standard of living and repay your debts.
- We deal with your creditors directly on your behalf.
- You make one affordable monthly payment to MoneyExpert and we do the rest.
- We aim to have your interest and charges frozen.
- Paying your debts back at a reduced rate is likely to harm your credit rating for six years.
- Paying reduced payments to your creditors will increase the time it takes to clear them.
- A debt management plan is an informal agreement and does not necessarily protect you from default or legal action.
For more information see our Debt Management page
Debt Settlement is a plan unique to Money Expert run by our trusted business partner Immediate Financial. Your debts are managed on your behalf like in a debt management plan but only token payments of £1 are sent to your creditors. The rest is saved up to offer settlements to your creditors in order to obtain discounts and get your debts resolved faster.
This may be the solution if you:
- Are struggling with your debts and you are unable to keep to your contractual payments.
- Have unsecured debts over £2500
- Have two or more personal creditors
- Have default notices or CCJ’s
- Want to wipe off debt but don’t want to go on or don’t qualify for an IVA.
What does debt settlement mean for me?
- You won’t have to borrow more money. We work with you to arrange a monthly payment you can afford.
- Your creditors are getting token payments but you are also saving up money to clear those debts at a discount and get your debts written off quicker.
- We will endeavour to freeze any interest and charges.
- You won’t pay a monthly management fee. After set-up the plan is on a no-win, no-fee basis.
- Because you are unable to keep to your contractual payments this will affect your credit file for up to six years making it difficult to obtain credit.
- Because creditors are receiving less than the contractual payment they may keep adding interest thus increasing the size of the debt. There is also the potential for your creditors to still consider legal action.
- Creditors are not obliged to accept the lower offer of payment and may continue to contact you by phone and letter. In most cases we can stop a lot of the unwanted contact.
An IVA is a scheme which allows a debtor to petition their creditors for a formal arrangement to help them pay off their debts.
The main advantages of an IVA are:
- At the end of the agreed IVA term you will be free of unsecured debt, whether or not you have paid your creditors in full (the effect on your credit rating will last for 6 years).
- You only pay what you can afford over a fixed period of time, usually an IVA term is five years.
- Interest on your debts will cease to accrue as creditors are required to prove their claims for an amount.
People often think an IVA is like going bankrupt - it isn't the same. However if the IVA fails this could lead to bankruptcy.
What does an IVA mean for me?
- An IVA is not advertised in the regular press and your employers will not be told.
- Details are published on the Insolvency Service register.
- The IVA is binding. In other words, once it is set up, creditors cannot change their minds.
- Creditors must deal directly with your insolvency practitioner rather than with you, so any threatening letters or telephone calls you may have been receiving will stop.
- Your home may also be protected in an IVA.
- In certain instances you may however be required to re-mortgage your property after 4 years in order to release any equity to pay off some or all of your debt.
Scottish Trust Deeds
Instantly reduce your monthly outgoings and start living again!.
The main advantages of a Scottish Trust Deed is:
- In almost all cases, Stay in your home and keep your car.
- Be debt free in typically 36 months (Just 3 years!).
- Incorporate all of your unsecured debt into the Trust Deed.
What does a Trust Deed mean for me?
- Only pay back what you can afford.
- Creditors cannot take legal action once Trust Deed is protected.
- A Trust Deed is a PRIVATE arrangement between you and your creditors No-one else will be involved.
- Your credit rating will be affected for six years.
- You will be placed on the Trust Deed Register and this will be advertised in the Edinburgh Gazette.
Debt Relief Orders
A Debt Relief Order is a form of bankruptcy for those with low income and low assets (items you own). It is arranged through the court.
This may be the right solution if you:
- Have disposable income of less than £50 per month
- Have a car worth less than £1000 and assets worth less than £300
- Can pay the £90 administration fee to the court
- Have debt worth less than £15000
- Have been resident, owned a property or run a business in the UK for the last three years
What will a Debt Relief Order mean for me?
- Your debts will be cleared in a year
- You can pay the £90 fee in instalments over six months if you are in hardship.
- Your creditors are not allowed to contact you or take legal action
- Your debts are frozen
- You are placed on the insolvency register, which is a public register.
- Your credit rating is adversely affected for 6 years.
- You may not be able to get credit over £500 without declaring you have a DRO.
- Your employment prospects can be affected.
A County Court Administration Order (CCAO) is an order from the court which allows you to pay one monthly payment to the court to distribute amongst your creditors on an equal basis.
You can qualify for a CCAO if you:
- Have at least one County Court Judgment
- Your total debt is less than £5000
- Owe money to two or more creditors
- Be a UK resident (not Scotland)
What will an administration Order do for me?
- You will pay one lump sum each month to the court
- Your creditors cannot contact you or take legal action while it continues
- You may ask for a composition order to pay a proportion of your debts off in three years. Otherwise the order will run till your debts are cleared in full
- All interest and penalties are stopped
- A fee of 10% of your payment goes to the court
- Your credit rating is affected for six years
- Creditors can opt out of the CCAO
- If you fail to keep up with payments enforcement action can be taken against you
There are alternatives to going bankrupt as you can see from the Debt Management, IVA and Trust Deed information below. If you are still having problems please read the information about bankruptcy below.
What are the implications of bankruptcy?
- You lose control of your assets.
- You cannot obtain credit for over £250 without the permission from the lender.
- You cannot act as a company director.
- You cannot take any part in the promotion, formation or management of a limited company (LTD) without the permission of the court.
- You cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy.
- You may not practice as a Charted Accountant / Lawyer.
- You may not act as a Justice of the peace (JP).
- You may not become an member of parliament.
- You may not become a member of the local authority.
- Your credit is affected for many years after the annulment.
- You may be publicly examined in court.
What are the advantages of bankruptcy?
- For the person involved, bankruptcy provides relative peace of mind and possible automatic discharge after one year (or less in some cases).
- For the creditors, bankruptcy allows a full investigation of the debtor's affairs to be carried out.
Debt Arrangement Schemes
A Debt Arrangement Scheme (DAS) is a government run debt solution available to Scottish residents who want to take control of their debts.
You qualify for a DAS if you:
- Have outstanding debts – there is no limit to how much can be included
- Have a reasonable amount of disposable income. There are no maximum or minimum figures. Each case is judged on its own merits
- Go through an approved DAS money advisor
- Are resident in Scotland for at least a year
What does a DAS mean for me?
- You pay one monthly payment which is split between your creditors. A proportion of your payment is a distribution fee usually 10%
- Interest and charges on your debts are frozen.
- Creditors are not allowed to take legal action or contact you
- You keep your house and car
- You pay 100% of your debt back
- Your credit rating is affected for six years and while in a DAS you will not be permitted any further credit
LILA stands for a low income low asset route into sequestration which is the Scottish equivalent of a Debt Relief Order.
You qualify for LILA if you:
- Are resident in Scotland for at least a year
- Have assets worth no more than £10000
- No single asset should be worth more than £1000
- don’t own a property
- have £200 for the application fee. There are no ways to avoid or pay this by instalment
- satisfy the disposable income criteria. If you are in receipt of income support you usually qualify automatically
- Can’t afford your contractual payments
- Owe more than £1500
- Are not apparently insolvent (see sequestration)
What does a LILA Sequestration mean for me?
- Your debts are written off within a year
- Your credit rating will be affected for 6 years
- While in a LILA you can only apply for up to £500 credit and only with the Insolvency Practitioners permission
- You are placed on the insolvency register which is a public register
- Your assets may still be sold to pay your debts
- Your employment and employment prospects can be severely affected
The equivalent of bankruptcy available to Scottish residents.
You qualify for Sequestration if:
- You have debts over £1500
- You are ‘apparently insolvent’. This is a legal term with an exact meaning. You must have either a certificate of sequestration, had legal action taken against you by a creditor through the courts or a statutory demand issued
- You have not been bankrupt in the last five years
- You have been a resident of Scotland for the last year
What does sequestration mean to me?
- Your assets can be sold to pay your debts
- You may be allowed to keep your car if it is under £3000 or your house if you have little or no equity in it
- Your sequestration is usually over in a year. However you may be asked to pay for up to three years if you have spare income. After that your debts are cleared
- You will be placed on the insolvency register and an advert will be put in the Edinburgh gazette
- You may not become a company director or hold your job as a director if you are sequestered
- Your credit rating is adversely affected for six years
- Your employment in certain sectors can be severely affected
Debt – Do’s and Don’ts
When you’re in debt it can take over your every thought and by simply working through some simple do’s and don’ts you can start to see the wood for the trees. Some of these points may seem obvious but sometimes we avoid looking at the truth out of fear and panic.
Don’t bury your head in the sand! Face up to your situation and start to deal with it. By reading this you’ve started the process. Calculate incomings and outgoings. Prioritise your debts – a priority debt is one where you could lose your home or an essential product such as the car you need to get to work. Contact all creditors and let them know your situation. Make small regular payments. Keep copies of all correspondence. Attend court and reply to all court documents/creditor’s letters within the time specified. Don’t be bullied or threatened by creditors.
Debt – Top 10 Tips
The number of millionaires in the UK is apparently on the rise, but the toxic mix of rising unemployment and high inflation predicted for the next few years could well mean that 1,000s of households are plunged deeper into debt.
The typical customer seeking Debt Help last year, on average, had just £43 a month in disposable income to repay more than £22,000 in unsecured debt – and that almost half of the clients cited unemployment or reduced income as the reason they couldn’t repay what they owed.
If that wasn’t bad enough, official figures from the Office for Budget Responsibility show that both unemployment and inflation are expected to increase this year. And with the jobless total currently at 2.53 million, the highest rate since 1994, and inflation running at 4.4 per cent, the picture is looking bleak for anyone who’s already worried about their molehill of borrowing becoming a mountain of debt.
But you don’t have to wait until the economy poleaxes you to tackle your debts. These ten tips will get you moving in the right direction.
1. Tot up every last penny you spend, from bus tickets to big ticket holidays. Go through your bills and statements and jot everything down for a week. If you’re spending more than you earn, you need to take action.
2. If you’re already juggling credit cards to make ends meet, it is best to stop. Try to cut back on luxuries, so you can make those repayments more easily and reduce your debt gradually. You may be better off rolling what you owe up into a single credit card or loan charging less interest if your credit rating allows, but before you apply for that…
3. Check your credit report. You’ll see a list of your credit accounts in one place, from loans and interest free deals to your mortgage. Your repayment record is there, too, reminding you if you’ve let anything slip. It’s free to see your Experian credit report with a 30-day trial of CreditExpert.
4. Your credit report is used by lenders when they decide whether to make you an offer, so clean it up. Look at any errors or inconsistencies and take them up with the relevant lender, close unused accounts that could be a target for a fraudster and shut down redundant joint accounts with former partners – if he or she has money problems, it could affect your credit rating.
5. Here’s an easy one: register to vote at your current address. Lenders use the electoral roll to check that you live where you say you do and being on it can add valuable points to your credit rating.
6. If you go into the red regularly, it could be worth getting an authorised overdraft. You are likely to pay less interest and could then escape penalty fees.
7. Save on essentials. Price comparison sites, such as www.moneyexpert.com, can help you to save on utility bills, insurance and other basics. Avoid making several applications at once because they leave a record on your credit report. If lenders find lots of these in a short period, they may think you’re desperate for money or even suspect fraudulent activity.
8. Don’t even think about borrowing more in order to meet existing repayments – you’ll end up in worse trouble. Don’t skip repayments either – the evidence will be on your credit report for at least three years, showing lenders you’re not reliable. Talk to them instead. They may agree a new schedule that’s more affordable or even offer you a payment holiday.
9. Don’t give up. Becoming insolvent isn’t an easy way out, even if your debts are written off as a result. It will be recorded on your credit report for at least six years, making it very difficult for you to obtain any credit in the future..
10. If you are still finding it difficult to manage your way out of debt - or the thought of trying to manage on your own is too much - then you should speak to an expert. Moneyexpert.com can provide debt advice and counselling. Simply fill in the form or call on the free phone number above. The initial advice is free, although charges will apply if you choose to enter into a Debt Management Plan or IVA.
Debt guide topics
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Reduce your monthly payments with a structured and managed debt management plan.
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Consolidate your debts into one low monthly payment with a Debt Consolidation Loan.
Find out more about Bankruptcy and find out information about suitable alternatives.