Debt Management Plans, IVAs and Trust Deeds are similar sorts of arrangements that can rescue people on the brink of bankruptcy from losing their homes, possessions, and face.

Rather than offering people yet another loan in a spiral of debt, these companies negotiate with the creditors to be realistic about what they can expect back and then set up a single payment plan based on what the client can afford after deducting their living expenses.

At the end of this period the client becomes debt free and is released from any further obligation to the creditors.

Debt Management Plans

Debt management is an informal agreement between you and your creditors (the people that you owe money to).

It involves a Debt Management service assessing your financial circumstances and then working out what you can comfortably afford to pay.

You then make one affordable monthly payment to your Debt Manager and they will distribute the money to your creditors. Your Debt Manager will also deal with your creditors for you, saving you from the daunting task, as well as the inconvenience, of dealing with individual creditors on your own.

There is a good chance your creditor will accept a Debt Management Plan (DMP) because it means that they are, at least, getting some money from you each month rather than nothing at all.

With an arrangement like this the creditor knows where they stand, how much they are going to receive and when they are going to receive it.

It therefore alleviates the uncertainty for the creditor along with the inconvenience of chasing you up.

What are the advantages of a DMP?

• These plans are tailored to you individually and offer an affordable solution to debt management.
• All correspondence with your creditors can be dealt with by your Debt Manager, saving you the hassle.
• They offer free advice on how to organize your finances and budget effectively.
• They can offer the possibility of the interest charged by your creditor being frozen which reduces the amount you must payback.

What are the disadvantages of a DMP?

• Due to the informal nature of the agreement your creditors can back out at any time.
• Although it is an option that can be pushed for creditors cannot be forced to freeze the interest.
• DMPs and reduced monthly payments mean a long term financial commitment to the full repayment of your debts, paying off your debts can take a very long time.


Individual Voluntary Agreement (IVA)

An IVA is a legally binding agreement between you and your creditors. It allows you to make affordable monthly payments for a reasonable period of time (usually 5 years) with any remaining debt written off at the end of that period.

What’s in it for the creditors?

It may come as a surprise then that the creditors would be happy to accept an agreement that could result in them writing off a large chunk of what they are owed.

Especially when you consider the fact that, depending on your circumstances, the arrangement can result in the writing off of up to 65% of your debts!

The reason that they are often willing to enter the agreement is, of course, not a charitable one. It is, in fact, likely to be in their favour as much as it is in yours, as the creditor will receive more money back through the IVA payment than they would if they pushed for your bankruptcy.

How do you go about setting up an IVA?

The formal nature of an IVA dictates that it must be set up by a licensed professional called an Insolvency Practitioner.

A debt adviser will often offer the service of a full financial review for free to see if an IVA would be the best solution for you.

What are the advantages of an IVA?

• The fixed time period of an IVA, usually no longer than 5 years, will ensure that you are debt free in a reasonable amount of time.
• All interest is frozen.
• Once your IVA is in place you are protected (providing you comply with the terms of the IVA) from any of your creditor’s demands or legal action.
• The agreement is private so is not loaded with any negative publicity and will not have any adverse affects with regard to your employment.
• IVAs offer the chance for a fully repaired credit rating which will improve gradually as you stick to the terms of your IVA.

What are the disadvantages of an IVA?

• There is a minimum level of debt to qualify that must usually be in excess of £12,000. There is also a minimum payback capability of at least £180 a month.
• Although nowhere near as damaging to your credit rating, an IVA will last for 5 years where as bankruptcy only lasts for 3 years.
• Your assets will be considered in an IVA. This may mean that you have to release equity from your property.
• The agreement is for a set period and it may be difficult to alter the agreement if your personal circumstances change for the worse.
• However, temporary lapses in payment can often be provisionally written off as a payment holiday and added on at the end of your agreement as an extension.
• All creditors must be included in an IVA and you cannot make separate arrangements with each one (which is an option with a DMP).
• The IVA will usually remain on your credit file for 6 years.

What is needed to qualify for an IVA?

Different companies will offer different qualification guidelines but in most cases your debt will need to be at least £15000 and your disposable income above £200 to allow for monthly payments that are usually no less than £200.

If your income is made up primarily of benefits you are unlikely to qualify for an IVA.

Scottish Trust Deeds

A Protected Trust Deed is a legally binding voluntary arrangement, available only in Scotland, which, similar to an IVA, aim to resolve debt problems by offering debtors an alternative to sequestration (bankruptcy in Scotland).

In principal then, a Trust Deed is the equivalent to an IVA for Scottish residents. They do though vary slightly to IVAs in that most of them only last for 3 years, as opposed to 5.

Although considered an "informal" bankruptcy, a Trust Deed is still regulated by The Scottish Bankruptcy Act 1985.