Published in Debt Advice Features on Saturday, December 09 2006

Although this site is bankruptcy oriented and is a resource for the bankruptcy law and procedure in England and Wales, this article is a guide to other options including bankruptcy.

Refinancing

If you have enough assets; which are worth more than is sufficient to repay your debts in full, then it may be possible that you can refinance your debts. If for example you have enough equity in your home to remortgage to pay off all your unsecured liabilities in full.

If you are in a position where you can do this then your creditors will offer you a settlement figure whereby you can pay the debts back less any interest.

Before making the decision to remortgage ensure that you get advice and ensure that a competitive rate of interest is obtained, or more importantly the monthly repayments are affordable. It should be likely then that the amount you were paying out to your unsecured debts is now far less through the remortgage and the repayments to it.

Another way to pay off your unsecured debts is through savings and investments, you could cash these in and pay off your debts, then use a proportion of the money you were repaying back to your creditors to save or invest again.

Even if your remortgage, investments or saving are not enough to repay your debts in full, it may be possible to offer the money in full and final of the debts.

Before making the decision, seek impartial advice. Click For Advice

Debt Management

Debt Management is a way of negotiation with your creditors, whereby you would make a reduced offer of repayment and reviewing your financial position once every 6 months. Generally it would take you longer to pay the debt back this way, but should offer you more financial freedom to cover your day to day living expenses.

A Debt Management plan is normally best for lower levels of debt, generally under £12,000, however the debt needs to be relative to what your earnings or what your income is.

Debt Management is normally best for a short term solution whereby for example you temporarily had a reduction in income or change in circumstances whereby you could no longer pay the expected monthly repayments that your creditors are asking for

Its is also possible in Debt Management to ask your creditors to freeze the interest on your debts while make a conscious effort to repay the debts through a Debt Management Plan, although some companies may guarantee this to you, it is impossible for them to do so, only the creditors can guarantee the interest to be frozen in a Debt Management Plan.

A Debt Management plan can be arranged in a number of ways, you can arrange the plan yourself directly with your creditors, this must be done in writing as trying to agree such a plan over the phone with your creditors could lead you to over committing yourself financially with your creditors leaving you no better off then than you were when you first started, your creditors could also try and make you over commit yourself demanding more than you can physically afford.

A very good way of arranging a Debt Management Plan is to get assistance with it whether that be through a Debt Management Company, or getting assistance in drawing up a financial statement to your creditors.

There are a number of reputable Debt Management Companies that can help in arranging this type of debt solution, if they are commercial then it is likely you would have to pay a fee towards setting up the solution and managing the plan for you, this seems bad, however a debt management plan administered correctly is well worth the charges that are involved, also the charges come out of what you pay back over the term of your plan.

You must be weary when dealing with debt management companies; as there are “rogue” companies who just want to make money or exploit what already is a difficult situation. These types of companies, deter people from seeking the help of a reputable fee charging Debt Management Company, there has been horror stories of people being “ripped off” through these “rogue” companies.

All that said there are reputable companies who yes may charge for running a debt management plan, but are very good in negotiating with your creditors, getting the interest frozen on your debts so you can make an effort to repay your debts at an amount you can afford. When deciding which debt management company to use, always ensure you can get a complete breakdown of what you have paid into the plan, who has been paid and what charges have been involved, always read the terms and conditions, if needs be seek legal advice.

There are other companies who do not charge for the service of debt management, they are free organisations or charities that can assist in drawing a debt management plan for you, they can offer a similar process of arranging a debt management plan for you, but a lot of the time they will send you a schedule or an information pack outlining how you can go about it yourself, there should be links within this site to these organisations.

I have spoken to people who have been paying into a Debt Management Plan for a number of years through these types of organisations and the debt has never decreased. Some claim they are free but are actually funded by the creditors. The free organisations in my opinion are no better or worse than the reputable Debt Management Companies that do charge a fee for their service.

Although the majority of the creditors would prefer people to enter into a Debt Management Plan with one of the “free organisations” and would recommend this to their clients, I have worked for a debt advice company for nearly 3 years and creditors refer clients to fee charging Debt Management Companies.

Always seek impartial advice before making the decision on any solution. Click for Advice

Individual Voluntary Arrangement

An IVA is a legally binding agreement with your creditors, it is an agreement run by licensed Insolvency Practitioners, you would agree at the start of the IVA to pay back all or a percentage of your debts over 5 years, the percentage is determined by how much you can afford to pay each month, but no less than 25% after the Insolvency Practitioners fees.

Although there is a minimum of a 25% return to creditors in the IVA, many creditors will not accept anything less than 35-45% back over the 5 years, this means that when making the decision about the IVA please be prepared that 75% of you debts are not likely to be written off. The concept with an IVA is that it is an agreement to pay back a much as you can physically afford over 5years, generally you would always pay back less than you owed originally, in knowledge that your debts are being repaid at an amount you can afford and you would be debt free after 60 repayments.

Remember before making a decision always get impartial advice. Click for Advice

Bankruptcy

Bankruptcy could be the best option for people who are in a position where there is no way in their current financial position that they could ever repay their debts or repay them over a realistic timescale. It would allow the debtor to be free from overwhelming debts and constant demands for payments by creditors. This site is for all things bankruptcy so please browse this site for more information on bankruptcy and the procedure.

Always get advice prior to making any decision in what to do about your unsecured debts, a company who has a best advice approach and can advise on all solutions when dealing with debts.

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