As for what to do when you’re already stuck with serious debt problems, you’ve got a variety of options. Again, the right approach will depend on the situation.
Debt Management Plan
One example is the Debt Management Plan. This is basically just an agreement to pay off your debts in an affordable way. They’re often arranged through specialist companies, who charge a fee to share out your repayments among the people you owe. You’ll need to provide some information about yourself and your circumstances, and the plan can be cancelled if you don’t keep to the agreement.
For debts up to £5,000 when you’ve got a County Court or High Court judgement against you, you might end up with an administration order. In this case, it’s the local court that divides up your monthly repayments among your creditors. While it’s not ideal, it does mean that the people you owe can’t take any more action against you without a court’s approval. There’s a court fee to pay for this, but it can’t be higher than 10% of your total debt.
Individual Voluntary Arrangement
Another option is an Individual Voluntary Arrangement (IVA). You make regular payments to an insolvency practitioner, who splits them between the people you owe. IVAs give you more freedom than declaring bankruptcy. However, you can still end up facing bankruptcy proceedings if you break their terms. Your creditors get a say in this as well, of course. Unless the people you owe at least 75% of the money to agree, you can't take out an IVA at all.
Debt Relief Order
For debts up to £20,000, you can sometimes get a Debt Relief Order to help soften the blow. If you qualify for one, your creditors will need a court’s permission to pursue you. Also, you’re generally considered clear of debt after 12 months. DROs are designed for people with very little spare cash, and who don’t own their own home. You’ll need to apply through an authorised debt adviser. If you meet the criteria (if you’ve got less than £1,000 of assets, for example), you pay a £90 fee to an “official receiver” and accept a few restrictions. You can’t be a company Director, for instance. You also can’t borrow over £500, open a bank account or manage a business without telling people about your DRO.
With bankruptcy, your situation is considered by the Insolvency Service. If they agree, and your debts are all unsecured, you'll again be given some rules to follow about handling your money and assets. Some of your property might be sold to pay your debts, and you might have to turn over things like bank cards. Even your home can sometimes be sold, depending on your circumstances. Despite this, bankruptcy really does protect you much as your creditors. Your pension savings, for example, are usually kept safe - along with your household essentials and anything you need for your job.