Debt is an integral part of running your business. It automatically gets into your business when you want to grow or expand it. Often the problem occurs when you find difficulties to repay these debts. Thus, make arrangements for paying off debt on time.
The government has developed some schemes to ease up the debt payment process for entrepreneurs. As per the Government Debt Help Scheme, you can easily repay your debts in installments. So, if you aren’t well aware of these schemes, then get in touch with government scheme to help with debt.
Various Government Debt Help Schemes for You:
You can pay off your business debts by setting up the following plans:
1. Debt Management Plan (DMP)
A Debt Management Plan comes into effect when you make an agreement with your creditors. It is an efficient government scheme to help out with debt. You can even choose a Debt Management Plan if it is possible to pay your creditors a small amount each month. Thus, it allows you to repay your debt within a few months instead of paying them at a time.
You can even create a Debt Management Plan by coordinating with your creditors. If not, then hire a licensed debt management company to design a plan in exchange for a setup fee. In case you hire a debt management company, then you have to make regular payments.
Some debt management companies charge for handling every payment that you make to your creditors. Moreover, the company will then share the money you are paying to the creditors.
A Debt Management plan is a good option for paying unsecured debts. Unsecured debts are those which are not guaranteed against your property. You must ensure your repayments in order to restore the Debt Management Plan.
2. Administration Order
If a country court or high court has given a judgment against you, then administration order is essential. Hence, you can avail of administration orders only when your debt is less than £5,000. According to these orders, make 1 payment a month to your local court if you are unable to pay in full. Then the court will be responsible for distributing the money among your creditors.
This option is advantageous since creditors listed on administrative orders can’t take any action against you. If they want to take action, then they will require the court’s permission. Hence, you can apply for the administrator order by filling up the form N92.
Next, the court will then scrutinize your form and decide whether you have to pay the full or a part of your debt. It will also determine your monthly payments and the time period for this arrangement.
The composition order is the same as the administration order, only the name differs. As per the administration order, you need to pay the court fee at the time of each payment. The fee will be 10% of your debt amount.
- You can apply for administration order only when your debt is less than £5,000, including any interest and charges.
- You can then apply for an administration order with two creditors only. Only you have to provide the court with the details of your income. You can thereby ensure that you are capable of regular repayments.
- Finally, the country or local court has to give a written judgment that you can’t pay the full amount.
You must maintain your repayments or the concerned court will initiate the attachment of earnings order. This order states that your employer will deduct the remaining debt amount from your wage. If you feel, then you can cancel the arrangement at any time with the prior application. However, it won’t have any effects on the operation of your business.
Register of Judgments, Orders, and Fines will maintain the administration order of your business. This arrangement gets automatically dissolved after 6 years since your administration order was made. So, if you want a certificate of satisfaction, then write an application to the court and send a cheque for £15 to the Majesty’s Courts and Tribunal Service.
3. Individual Voluntary Arrangement (IVA)
When you make an agreement with your creditors to pay the entire or a part of the debt, it is called IVA. When you make IVA, you agree to make correct payments to the concerned insolvency practitioner. This person, in turn, will divide the payment between your creditors. Unlike bankruptcy, IVA also allows you to exercise more control over your assets.
Inform the insolvency practitioner about the amount that you can afford to repay. Also, state how long would you like to extend this Individual Voluntary Arrangement. Apart from this, specify the value of your assets, debts, income, and the name of respective creditors. Then the insolvency practitioner will contact your creditors and verify the amount you owe to them.
The cost involved in IVA remains the same as the previous two methods. So, you have to pay a setup fee and a handling fee at the time of making each payment. Still, have a talk with your insolvency practitioner and ensure all payments.
Conditions for IVA
The IVA is enforceable if the creditors holding 75% of your debt accept it. In that case, the IVA will be applicable to other creditors who haven’t accepted it.
If you do not keep up your repayments, then the insolvency practitioner can cancel the IVA. If the situation demands, then he can make you bankrupt as well. However, you will be able to carry on with your business as before.
As your insolvency practitioner enforce the IVA, it gets added to the Individual Insolvency Register. The IVA will be removed from the register three months after your IVA ends.
4. Debt Relief Orders (DRO)
If you owe less than £20,000, then you can opt for debt relief orders. It is easy to apply for Debt Relief Orders if you don’t have much spare income and lack your own home. If you possess Debt Relief Orders, then your creditors will require the court’s permission to recover the debt. Moreover, you are free from your debt 12 months after making the Debt Relief Order.
You can even obtain a DRO from the officer of a bankruptcy court. But, an authorized debt advisor is necessary to help you with the paperwork.
£90 is the fee of the official receiver at the bankruptcy court. Your debt advisor will tell the time and process of paying the official receiver’s fee. Ask your debt adviser whether a charity can help you with the cost of DRO or not.
- You are eligible to apply for DRO if your debt is below £20,000.
- You must have less than £50 of spare income every month.
- The value of your assets must be less than £1,000.
- Moreover, you must have lived or worked in England and Wales within the last 3 years.
- You cannot apply for a DRO if you have already applied for it in the last 6 years.
If you have obtained a DRO, then you cannot borrow more than £500 without the lender’s permission. You cannot manage a business without informing your partners about the DRO. Even you cannot act as a director of the company as well. Finally, you will require the court’s permission to set up, manage, or promote a company. In case you wish to open a bank account, then inform the bank about your current DRO.
DRO restrictions will last as per the time mentioned in the Individual Insolvency Register. However, the restrictions usually do not last for more than 12 months. Remember, that careless or dishonest behavior on your part might extend the time of DRO. The court will then ask you to agree to a Debt Relief Restrictions Undertaking for extending the time of DRO. If you do not agree, then the court itself will issue the Debt Relief Restrictions Order.
- If you are having a DRO, then you cannot avoid your rent and bills.
- You will have to pay debts like student loans, court fines, etc.
- The DRO will be longer valid if your financial condition improves.
- Noncooperation with the official receiver can also cancel your DRO.
- You can get a bankruptcy order if you obtain a new debt after your DRO approval.
- As your DRO gets approved, it is added to your Individual Insolvency Register.
- Your DRO will be removed from the Individual Insolvency Register 3 months after your DRO ends.
These are the necessary information that one must know to avail of the government debt help scheme. Hence, make sure to choose the best scheme based on your requirements and financial status.