If you are struggling to repay your debt on time, then taking support from the Government Debt Helpline or Debt Management companies can be beneficial. As they can provide you with various solutions and plans to effectively manage your debt.
No debt should be left unsolved, although it might not be easy or resolved overnight. So, the faster you deal with them, the easier it becomes to get rid of debts.
Debt Situation in the UK
Most people in the UK can undergo 2 types of debt situations. Priority debts and non-priority debts. Mortgage, rent, energy bills, tax are some of the examples of priority debts. Whereas, credit card or store card payments, bank loans, overdrafts, catalog repayments are non-priority debts.
The government of the UK is trying to help its citizens to deal with such financial situations by providing different aids. National Debtline is one of them. Its main aim is to improve the standards of free money advice for the population via Government National Debt Helpline.
National Debt Support
National Debtline runs a debt helpline for the people of the UK. They provide free debt service for people living in England, Wales, and Scotland via the telephone. Along with that, they offer free debt solutions including debt management plans through their website.
So, basically, National Debtline provides relief to people with debt. The organization was set-up in 1987 and was a part of the Money Advice Trust (MAT). It is a registered charity funded by the private sector and also the government of the UK.
There are different services that come under National Debtline like:
- Debt Management Plan (DMP)
- Administration Orders
- Individual Voluntary Arrangements (IVA)
- Debt Relief Orders
Debt Management Plan
It is an informal agreement between you and your lenders to clear all your debt. You should apply for a DMP under these circumstances:
- You can only pay a minimum amount each month to your creditors.
- Facing debt problems but, will be able to make repayments after a few months.
You can arrange your own plan with the lenders or consult a licensed debt management company. The company on your behalf will then share and distribute the minimum amount you pay each month to your creditors.
How to Get a Debt Management Plan?
To get a debt management plan on your existing debt:
- First, you need to contact a debt management company that is authorized by the Financial Conduct Authority (FCA). They will then set up a plan according to the condition of your finances.
- To find an authorized company, you can search the Financial Services Register.
- After that, you need to provide all the details about your financial situation like assets, debt, income, etc. Then the company can work out a monthly repayment option catered to your budget.
- Now, the company will contact all the creditors on your behalf and ask them to agree with the plan that best suits you.
Remember, you are only eligible to use DMP on your non-priority debts. However, you still have to pay a certain minimum amount each month to clear all your dues. If you fail to keep up with your repayments, then there can be drawbacks to your credit score.
Now, the cost of their services depends on the company you select. There are certain companies that take a monthly fee but, there are some that provide their services free of cost.
This is one of those services that National Debtline provides with support of the government. Hence, an administration order is a possible way to deal with your debt if you have an existing judgment against you.
Then the country court or high court decides a monthly payment that you need to make if you can’t pay your debt in full. Although the total outstanding debt against you can not exceed £5000.
Due to the administration order, you will have to make one payment per month to your local court. Then the court will distribute the money between your creditors.
If you have this order, the listed creditors cannot take any action against you without the permission of your court.
How to Get an Administration Order?
To get it from your local court, first, you need to file an application for an administration order. Later, return it to your local or country court as well.
After submitting the application, the court will process all your information and then decides:
- Whether you need to repay your debt in full or just a part of it.
- How much you need to pay as a monthly repayment to the court?
- For how long the order will last.
Once you agree to the condition presented by the court, your monthly repayments start. If you are unable to pay all your debts somehow, then the arrangement, known as a composite order, will be applicable to you. It simply means you have to pay a part of your debt only over a period of 3 years.
However, there is a court fee every time you make a payment through it. Although, it cannot be more than 10% of your total debt.
Eligibility and Responsibilities
There are certain criteria that need to be checked to be eligible for an administration order:
- You need to owe less than £5000, including interest and charges to your creditors
- Have taken credit from 2 or more lenders
- A fixed income to afford the regular repayments
- Have a judgment against you in any of the civil courts
Your sole responsibility is to keep up with your monthly repayments or the court can issue ‘attachment of earnings order’. According to it, they can ask your employer to deduct the money from your wages from time to time. But, the court can cancel the arrangement anytime.
In the “Register of Judgements”, the administration order is added and is usually removed after 6 years from the date the order was issued.
Individual Voluntary Arrangements (IVA)
IVA is an accord to pay all or some parts of your debts with your creditors. In this agreement, you make regular repayments to an insolvency practitioner, who then divides your money between all your creditors or lenders.
How to get an IVA?
To get an IVA on your debt, you need to use an insolvency practitioner. Once you get an insolvency practitioner, they will work a plan to figure out what you can afford to pay. They will also estimate how long the IVA should last.
Besides, all the details of your finances are to be presented in front of the insolvency practitioners. In return, they will contact your creditors. But, the IVA process only starts when the creditor is holding 75% of your debt agrees. If the creditor agrees to IVA, then it applies to all your creditors who will disagree with it.
On the bright side, it will stop your creditors from taking any further action against your debt.
If you are filing for IVA, there are 2 types of fees attached to it:
- A minimal setup fee
- A handling charge for every payment you make
Your insolvency practitioner can cancel your IVA if you are not able to make the repayments every month. There is also a risk of possible bankruptcy if you can’t maintain the minimum repayment each month.
So, if you are applying for an IVA, then it gets added to the Individual Insolvency Register. Although it gets removed after 3 months from the date your IVA ends.
Debt Relief Orders (DRO)
This is one way to deal with your existing debt problem. The government of the UK provides relief orders if you owe less than £20000 to your creditors and have a low income. But, you can’t apply for DRO if you own a house.
It is a great way to clear all your debts. If you qualify for the debt relief, a DRO team will apply to the insolvency service on your behalf. Also, if you are looking for a low-cost alternative to bankruptcy, then you can opt for DRO.
For a period of 12 months, all your monthly payments and interest get frozen due to this order. In that period, you don’t need to pay anything towards your debt. At the end of that period, if your financial situation has still not improved, all your existing debts are written off.
After applying for a Debt Relief Order, your creditors cannot contact you regarding your debts for 12 months period. Although it’s a formal debt agreement, you don’t need to appear in court for any hearing.
How To Get a DRO?
DRO must be applied through an authorized debt adviser only. You can’t file it personally. To apply for a DRO:
- First, you need to check if you are eligible for it and whether it is the right decision for you. There are free online advice tools that you can use to get rid of debts. Else, you can speak to an expert using Government Debt Management Helpline for the best possible decision.
- All the necessary documents required to file a DRO should be filled properly and return to the debt adviser for the initiation of the process.
- The debt advisor with his/her team will prepare your application for the DRO.
There is an additional cost for its services, where the official receiver fee is £90. So, you can pay the cost in installment or full depending on your location.
Eligibility and Restrictions
You are eligible to file a DRO if you meet all the criteria required:
- Your credit dues should be less than £20,000 and income less than £50.
- The total worth of your asset should be less than £1000. Also, within the last 3 years, you must have worked or lived in England and Wales.
- In the last 6 years, you have not applied for a Debt Relief Order.
Although there are certain sets of rules or restrictions after filing for a DRO. This means while in DRO you cannot do the following:
- Borrow extra credit more than £500 without informing about it to your lenders.
- After filing a DRO, you cannot act as the head of the company. Also, you can’t create, manage or promote the business without the court’s permission.
- You cannot manage a business without informing about the DRO to your other business partners.
- To open a new account, you need to inform your bank or building society about your DRO.
The restriction usually lasts for a period of 12 months. Although, they can be extended in special cases, depending on your behavior. Also, the DRO issued can be canceled under some circumstances anytime. While on DRO, you still need to pay your rent, other bills, and even certain debts.
Usually, DRO is removed from the Individual Insolvency Register after 3 months. But, it stays on your credit report for the next 6 years.