An informal arrangement with creditors is an agreement between you and your creditors to repay your debts with a reduced monthly payment.

Key characteristics

These types of arrangements are not court ordered or approved, and are suitable for people who are experiencing debt problems but are likely to be able to make the normal repayments again in the near future, normally in a few months. The informal arrangement may be an effective solution for people with short-term financial problems. Find out more >>>

A debt management plan (DMP) is an informal arrangement with your creditors to repay the debts with a reduced monthly payment over a number of years, usually no more than 10 years.

Key characteristics:

Payments are made until the debt is cleared in full or until you are able to make the full repayments again. The arrangement is made on your behalf by a third party (debt management company) who will also negotiate the reduced payments with your creditors and distributes your available income. The repayments to creditors are based on what you can afford after a realistic financial statement including your income and spending has been prepared. Find out more >>>

Debt consolidation is a process whereby you take out a new loan or increase existing borrowing in order to pay off multiple debts. Basically, this means you swap some or all of your creditors for just one creditor. You should then pay less every month and pay it all to a single source.

Key characteristics

Debt consolidation in many cases is an unsecured loan, where a credit provider lends you some money to pay off all other loans. Because the loan is unsecured, you don’t risk losing your property if you don’t repay the debt. In other cases re-mortgaging or taking out a secured on your property loan could help you to get some money to pay off your existing debts. But, if you default on repayments, the secured creditor can repossess your property or can have a claim on the proceeds if the property is sold. Find out more >>>

A county court administration order (CCAO) is a county court order which prevents individual creditors taking enforcement action without permission from the court and which requires that all your debts be dealt with together.

Key characteristics

You can ask the court to make the administration order if you owe less than £5,000 to at least two creditors and you have a county court or High Court judgment against you and you can’t pay it in full. You make one payment a week or a month to your local county court, which shares the moneys between your creditors, in proportion to the amounts you owe them. If you don’t keep up your payments, the order can be revoked and the creditors can start their debt recovery action again. Find out more >>>

A debt relief order (DRO) is a form of simplified bankruptcy to enable people with relatively small amounts of debt and income and almost no assets to write off their debts. A DRO is made by the official receiver from the UK Government’s Insolvency Service. You can only apply for a DRO through approved intermediaries – authorised by competent authority debt advisers who assist individuals with the completion and submission of a DRO application. DRO lasts for one year, and once it has ended you are released from your debts (with some exceptions).

Key characteristics

A DRO is available to people who are struggling to pay their debts of no more than £20,000, whose assets are no more than £1,000 and whose disposable income, after deducting normal household expenses, no more than £50 per month. Certain assets are excluded from the calculation, for example clothing, furniture and a vehicle worth less than £1,000. There is a fee of £90 payable to an approved intermediary. The application is then considered by the official receiver from the UK Government’s Insolvency Service. Find out more >>>

An individual voluntary arrangement (IVA) is a formal agreement to repay debts between you and your creditors. An IVA is a way to avoid bankruptcy. It’s generally suitable for people who are unable to make their regular debt repayments in full but who have some money to give to their creditors each month or in a lump sum payment. An IVA is set up and supervised by an insolvency practitioner.

Key characteristics

An IVA proposal sets out how you intend to repay your creditors, usually over a period of five years. The arrangement provides for you to rearrange payment of your debts and for your creditors to accept less than 100 pence in the pound of their debts. Once the proposal is prepared, a meeting of the creditors must be called by the nominee where the creditors will than have the opportunity to vote on the proposal. If at least 75% by value of the creditors vote in favour, the IVA will be approved. In general terms, creditors vote in favour of the IVA if they receive a better outcome than in case of your bankruptcy. Find out more >>>

Bankruptcy is one way of dealing with debts you can’t pay. This is a formal process administered by the Court or Adjudicator.

Key characteristics:

• Your property and assets are shared out fairly among you creditors.
• Your financial and business affairs will be dealt with by a specially appointed professional.
• You are freed from the majority of debts after 1 year.

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