Citizens Advice Debt Support : Solution for Debt Management

If you reside in the United Kingdom, there is no need to get tense about your extreme debt situation. There are Citizens Advice debt support professionals available to get rid of such situations.  This will help to become debt-free and also lead a normal life with your family. 

So, there are times, when you can be in an extreme debt condition and might think about losing your home, assets, etc. But, there are some debt recovery plans such as IVA, DMP, DRO, etc., which might help you in this regard. 

However, before going for the solutions, you need to consider some important factors and eligibility to receive debt support or advice.  

How can you Get Free Debt Advice? 

If you’re struggling with a critical financial situation, you can get advice and support from various debt management agencies. There are many registered and reputed debt management companies available in the UK to support the citizens. 

But, there are some agencies who can take charges from the citizens as well to support them with debt relief. So, you need to do online or market research to find out the best-registered debt agencies that won’t charge you anything. 

You may expect these features from a good debt advisor and hence, take a glance at the points. 

  • A good debt advisor won’t judge you whatever the situation you are going through. 
  • They will always consider talking to you, irrespective of whether the problem is big or small. 
  • The experts will suggest you the right way to manage your debt amount and also give possible solutions to recover it. 
  • You may get to know about many debt management plans from them to pay off the debt. 
  • They may also provide you with the proper budget plan and ways to get rid of the debt.  

Solutions from Citizen Advice Debt Support to Overcome Debts 

According to the UK’s debt management scheme, there are many ways to pay off or overcome the financial situation. These methods can be very helpful for the citizens to get rid of their critical debt condition. Hence, you may take a look at some of the main debt management processes to tackle the situation. 

Individual Voluntary Arrangements or IVA 

Individual Voluntary Arrangements is a formal and legal agreement between the creditor and the debtor. In this process, the debtor gets a maximum of five years to pay off the debt amount. During the IVA process, the creditors won’t get any threats and notices from the creditors. 

Sometimes, the creditors may agree to write off the debt in a large proportion. Using the IVA plan you can pay back the monthly instalments to your creditors at an affordable rate. Also, there is a certain amount required to undergo this IVA plan. You must borrow from more than two creditors to avail of the benefits of the IVA scheme as well.  

Pros 

  • Once the IVA’s term and duration is over, you can get back to your normal life. 
  • You just need to pay one agreed percentage to your creditor. 
  • The creditors can’t threaten or take any legal actions against you as the IVA plan is totally legal.
  • The monthly interest rate is dependent on your annual income and expenditure and hence, it is affordable. 

Cons 

  • There are some creditors who won’t agree to undergo the IVA process. 
  • Though the monthly charges are affordable, you must pay the repayments every month. Otherwise, you may face legal issues. 
  • It may affect your credit score as it will remain on your credit file for the next 6 years. But if you complete the plan within 5 years, then it will be good for your credit profile. 

Although the IVA management agencies will take the payments from you monthly, you may need to pay additional charges. 

Debt Management Plan or DMP 

The DMP is an informal agreement between the debtor and the creditor in which you need to pay monthly repayment. But the interest rate is totally affordable and less complicated than the IVA process. 

If you’re a citizen of England or Wales, you can get the benefits of the DMP as well as IVA.  However, the DMP does not include any required eligibility criteria as that in the IVA process. 

 Pros   

  • Many creditors may reduce your monthly payments and late fees. Hence, you can be debt-free. 
  • Once you complete three consecutive payments, you may get the benefits of this DMP scheme. 
  • You may get less impact on your credit score when you complete the agreement. 
  • As DMP is a flexible process, you do not require to sell your property. 

Cons 

  • You may feel it difficult to convince the creditors, as they may not agree to undergo the scheme. 
  • You must make three consecutive payments to avail of the opportunity and advantages of this scheme. 
  • If you fail to pay any of the interests, then it may affect your credit score. 

Bankruptcy 

If you’re going through a critical debt situation and can’t afford the money to repay, you can go for bankruptcy. There must be a certain amount that you borrowed from the creditors to declare yourself bankrupt. If you’re really struggling with a critical debt, only then you can apply for it. Otherwise, you might have to face serious consequences. 

Pros of Bankruptcy 

Once the order for bankruptcy is over, you can start your life in a completely new manner after one year. You may take a glance at some of the advantages of Bankruptcy that are discussed below. 

  • No further pressure from the creditors once you apply for going bankrupt. 
  • Some exempt goods such as household items, car (if it’s less than £2000) are only allowed to keep with you. 
  • You can keep only a certain amount with you to live on. 
  • Once you get a bankruptcy order, the creditors must stop taking court actions against you.  
  • If you are paying the debt from your income, you need to pay it for three years only. But if your earning is only from the welfare benefits, then you do not have to make the repayments.  

Cons of Bankruptcy 

You need to pay a fee of £680 when you are going to apply for bankruptcy. Otherwise, you may face these disadvantages while going through this process.  

  • If you have a higher income, you need to pay for the next three years to your creditor. 
  • It may affect your credit score for the next six years. Additionally, it will become difficult for you to get credit during this period. 
  • You may lose your home and property, which also depends on the value of your property. 
  • It is also possible that you may lose some of your valuable things except the exempt goods. 
  • Your landlord may cancel your rental agreement and it will be difficult for you to arrange a new home. 
  • If you have your own business, then it may be shut down or sold out. 
  • You may lose your job, as some organizations do not allow a bankrupt to work in their companies. 
  • Your family might get harassed publicly and you may lose your immigration status as well. 
  • It may affect your financial affairs as the bankruptcy order may last for 15 years on your financial statement.        

Debts Under Bankruptcy 

You may get discharged after completion of one year of your bankruptcy. After that, you do not have to pay any debt to your creditor. But still, you need to pay some amount including the court fees, student loan fees, etc. Now, the debts that you still need to pay are discussed below.

It includes the court fees, student loans, secured loans, other social funds that you must continue to pay after bankruptcy. You also require to pay the maintenance payments or the child support payments that you have taken for your family.  

Check your Mortgage 

You still need to pay the mortgage payment even after getting the bankruptcy order.  But if you fail to make the payments after becoming bankrupt, your mortgage lender may seize your home. Though they may repossess and sell your home, the selling budget won’t be enough to sort out the matter.  

Hence, there will be a remaining debt known as Mortgage Shortfall. After paying it, you may get rid of the mortgage debt completely. 

Guarantor Debts   

If you have taken a loan by making someone a guarantor, you will be eligible to get bankruptcy.  But the guarantor still needs to make the payment for the debt. 

On the other hand, you may get the bankruptcy if someone can’t afford the payment and you have made the guarantee. In that case, the creditor can not chase you for claiming the debt amount.  

Debts for Business  

If you have taken the debts under a business partnership with others, you can still apply for bankruptcy.  But, until all the partners agree or you make a joint application for going to bankruptcy, it will not be applicable.  You can also take the help of a debt advisor regarding becoming bankrupt to clear your business debts. 

You may get free and confidential debt advice from the Business Debt Line (BDL) charity that helps the citizen by providing debt support. 

Debts Taken Jointly 

You can also apply for going bankrupt if you have taken debts jointly with another person. The creditor will then chase the other person to claim the total debt amount. It won’t even matter if the person works or not and he must repay the debt to the creditor. 

So, both of you can apply for going bankrupt individually that includes the joint debts. But you can’t go for bankruptcy together as you need to apply separately. Besides, both of you need to pay a court fee and a deposit individually to apply for it. 

Debt Relief Order or DRO 

Under the DRO plan, you can write off some debts that are covered by the plan. Though it’s designed to escape certain debts, there are some factors that you need to consider while going for it. The factors include the total payable amount for DRO, the total amount to repay, the effects of DRO on your life, etc. 

Debts Under the DRO Plan 

You do not have to pay the creditors if under the DRO plan. The DRO includes the debts (also called qualifying debts) such as credit cards, overdrafts, loans, benefit overpayments, etc. It also includes business debts, utility bills, telephone bills, conditional sales agreements, income tax, council tax, etc.  

Sometimes, service bills such as solicitors or vets, buy now- pay later agreement, debts that you owe to friends are also included. 

Debts not Covering the DRO Plan 

The debts that are not included in DRO are student loans, social funds loan, death or injury compensation, etc. It also includes court fees, charging order fees related to criminal activity, child support, and maintenance fees. 

But, you can not include any debts to your DRO plan if you forget to add it before. You can also ask your advisor if you’re not sure whether the debt will cover the DRO or not.  

DRO Eligibility 

You can apply for a DRO plan if the following criteria match your eligibility.  

  • You can’t afford the payments to repay the debt and the qualifying debt is less than £20,000. 
  • Only £50 left every month after paying your household expenses. 
  • If you are a citizen of England or Wales for the last three years and do not own your property. 
  • You made the DRO six years before and don’t involve other legal insolvencies such as IVA or bankruptcy, etc. 
  • The value of your savings and assets is less than £1000. 

Pros of DRO 

  • DRO does not require an appearance in the court. 
  • Once you are going through the DRO process, the creditors can’t take any legal actions against you. 
  • DRO includes most of the debts in it including the council and income tax, rental tax, etc.  

Cons of DRO 

  • You won’t be eligible for this order if you own a home and have equity in there.
  • Certain debts can’t be covered such as court fees, student loans, maintenance fees, etc under DRO. 
  • It may affect your credit rating and the details may be kept with the Individual Insolvency Register. 
  • You may get a debt restriction order if you are involved in any fraud or dishonest activity.    

Administration Order 

An Administration Order is a legal and formal agreement between the creditors and the debtor. This debt solution is helpful for the citizens of the UK to provide them with debt support. Once an Administration Order is issued from the court, the creditor must agree with the decision.   

Hence, to get an Administration Order the debtors must have: 

  • Your total debt must be less than £5000
  • Two or more than two debts
  • An unpaid CCJ that covers a traffic penalty registered in the Traffic Enforcement Center

How the Administration Order Works?   

You need to fill out an N92 form and send it to the court to apply for the Administration Order. There is not any upfront fee but the court might take 10% of your monthly charges. 

Once you apply for it, the court will review your financial condition and instruct how much you need to pay every month. So, you need to pay a certain amount each month to the court and they will repay it to the creditors.  

Alternatively, you can also apply for a Composition Order along with it so you can get the time limit. Generally, the court will give you three years to repay a certain amount. Somehow, if you can’t make that payment, the remaining debt may be written off at the end.   

Debts Under Administration Order

The Administration Order mostly includes all types of debt and you can also make a list of your total debts. Though the creditors may object to it, the district judge will make his/her decision once you apply for it. But if you have a rental debt or mortgage, then you can ask if the court will consider it or not. 

If you have a joint debt, each person needs to repay the total debt amount to the court. But if the other person doesn’t apply separately for the Administration Order, the creditor may chase him for debt. 

After Getting the Administration Order 

An Administration Order will last unless you repay the debts and court fees. But if you apply for a Composition Order, you will get a time period of three years. Once the time period is over, you can apply for a Certificate of Satisfaction by paying £15 to the court. 

The Administration Orders are listed in the Register of Judgements, Orders, and Fines and will last for 6 years. This record will also be there on your credit profile and hence, it may affect your credit score. Once you repay the term debt amount, it will show “Administration order paid off’ on your credit profile.