Dealing with debt
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 how bad the trouble is.
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 share out your repayments among the people you owe – for a fee, of course. You’ll need to cough up some information about yourself and your circumstances, and the plan can be cancelled if you don’t hold up your end.
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. Obviously, this isn’t much fun, but it does mean that the people you owe can’t take any more action against you without a court okaying it. There’s a court fee to pay for this, but it can’t be higher than 10% of your total debt.
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, they're still serious business, and you can find yourself knee-deep in 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.
For debts up to £20,000, you can sometimes get a Debt Relief Order to help soften the blow. There’s a string of hoops to jump through to qualify for these, but again they mean your creditors need a court’s permission to go after you. Also, you’re generally considered clear of your debts 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, too. If you meet the criteria (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. You can think of it as a sort of “Diet Bankruptcy” deal.
With full-on bankruptcy, your situation gets looked at by the Insolvency Service. If they say so, 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. It sounds awful – and it pretty much is. However, bankruptcy really protects 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.