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Other Options

If a Debt Management Plan is not suitable for you one of the following could be:

Trust Deeds

A Trust Deed is a voluntary agreement between an individual and their (unsecured) creditors.

They usually last three years but can vary and must be proposed and supervised by a qualified insolvency practitioner.

In England they must be agreed to by the creditor. Other forms of trust deeds are only available to individuals that reside in Scotland.

Each case is assessed individually, much in the same way as an IVA in England or Wales you may qualify if you have debts of £7,000 or more and owe money to two or more creditors.

An alternative of the Trust Deed is the Protected Trust Deed, it differs because it is legally binding to creditors, and subjects you to compliance of terms under which it was agreed.

Under a Protected Trust Deed, your creditors cannot take any enforcement action against you, i.e. filing for bankruptcy.

What are the benefits of a Trust Deed?

  • Consolidate all of your unsecured debts into one monthly payment
  • Write-off all of your remaining unsecured debt at the end of the term
  • Have a fixed term usually three years
  • Avoid bankruptcy / having property seized
  • Stop creditors from calling and sending letters to you
  • Align monthly outgoings to your income and expenditure
  • Allow you to continue to run any limited company that you may be running

Are there any drawbacks to a Trust Deed?

  • You must declare all of your assets to your trustee they may release any money held in assets
  • You will normally be expected to raise money from the equity in any property that you own
  • A trust deed will not prevent repossession if you fall behind on your mortgage

Debt Relief Order

A Debt Relief Order commonly known as DRO can help you relieve yourself of debt if you are unable to repay it over a reasonable amount of time.

There are certain criteria that you have to meet to apply for a DRO:

  • You owe less than £15,000 in unsecured debts
  • You are not a homeowner
  • You have no more than £300 assets (although one car up to the value of £1000 will be exempt)
  • You have less than £50 a month left over after you've paid all of your living costs

Under a debt relief order your debts are frozen for 12 months. During this time your creditors agree not to persue you for the outstanding debt. They also agree not to add further interest to the balance.

If after 12 months you still cannot repay the debts at a reasonable monthly amount, they may be removed.

Debt Consolidation

Debt Consolidation is the name given when you take out one large loan to pay all of your smaller debts at one time.

This means you only make one payment per month rather than a number of payments at different times throughout the month.

If you are considering debt consolidation, you must first work out how much you can reasonably afford to pay each month.

It is essential that you budget enough money every month to cover all of your needs. It is advisable to cease using and applying for credit until you have paid the consolidation loan in full.

If you are in arrears with your current creditors, your credit rating is likely to have been affected this may mean that you are unable to obtain a further loan and if you do the interest rate could be high.

It is important that you understand how much you will pay for the loan in full. If you extend the loan over a longer term than your original debts you will be paying more in interest and so increasing the amount of debt you have overall.

It would be ill advised to consolidate your unsecured debts by taking out a secured loan, which will secure the debts against your property. This means that if you fall behind with the payments in the future, you risk repossession of your property.

Please note that Debt Out do not offer loans to customers.

Individual Voluntary Arrangement (IVA)

Individual Voluntary Arrangements, commonly known as IVAs, are a binding agreement between you and your creditors (the organisations you owe money to) for a fixed and pre-determined period of time.

The agreement presents terms stating that you will make fixed monthly payments and, in return, they will accept lower payments over a fixed term (usually five years).

You may qualify for an IVA if you have debt of £10,000 or more; owed to three or more creditors.

Following the initial five years your creditors will elect to write-off the remaining balance of the debt not repaid within the specified time-frame. You may be required to raise some additional money, this is determined based on personal circumstances.

The criteria is simple, however, each individuals' situation will be different and the IVA is based on an in-depth analysis of your individual circumstances.

Unlike Debt Management Plans (DMPs), which are a less formal debt solution, IVAs have a fixed term.

An IVA will:

  • Consolidate all of your debts into one monthly payment
  • Give you a date on which your debt will be cleared provided you stick to the agreement
  • Reduce your monthly outgoings in-line with what you can realistically afford
  • Freeze your interest and charges
  • Stop letters and phone calls from your creditors
  • Stop debt collectors and bailiffs from calling you
  • The agreement is fixed for the stated period
  • Your details will be recorded on the insolvency register
  • You will not be able to get any additional credit
  • Failure to comply with the IVA may lead to your creditors filing bankruptcy papers
  • Your credit file may be affected

The insolvency service has produced a guide for people who are struggling with debt. This guide outlines each of the solutions available to you based on your circumstances.

In Debt? Dealing with your creditors. Available to download below

download PDF