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What are the different debt solutions out there?

An individual voluntary agreement (IVA) is an agreement between you and your creditors to help you pay off your debts at an affordable rate.

A Debt Management Plan (DMP) is when you reach an agreement with your creditors to repay your debts, in full, at a lower rate that is more affordable to you. This agreement, unlike an IVA, is informal. As it is an informal arrangement, you are not tied into any contract and there is no timescale. You can opt out of the agreement at any time, for example when you are in a better financial situation. It also allows your creditors to control your agreement and is unprotected, unlike an IVA. Under a DMP you make reduced payments against your full debts. So, it may take longer to clear your debts. Creditors may also charge interest while in a DMP, interest is frozen when you are in an IVA

You can apply to make yourself bankrupt if you can’t pay your debts. You can only apply for bankruptcy online. Your application should be made online by completing forms on the Insolvency Service’s website at: You’ll be asked to create an account. You can start your application and come back to it later by logging in to your account. You contact the Insolvency Enquiry Line (tel 0300 678 0015) if you need help with your application. Before you start, you’ll need to provide information about your income, outgoings and debts, including: wage slips, benefits or pension statements, bills, eg electricity, credit card and council tax, letters from a bailiff or enforcement agent. You won’t be able to submit it until you’ve paid the full fee (currently £680). You can pay in instalments if you can’t afford to pay it all at once. Bankruptcy is a serious step to take and can have serious consequences. You should check to see if there are other ways to deal with your debts before applying for bankruptcy. Your application will be looked at by someone who works for the Insolvency Service called an ‘adjudicator’. They’ll decide if you should be made bankrupt. The process is different if someone else is applying to make you bankrupt.

A Debt Relief Order (DRO) is a way of dealing with your debts if you can’t afford to pay them. It means you don’t have to pay certain kinds of debt for a specified period (usually 12 months). At the end of the DRO period, the debts included in it will be written off (‘discharged’) and you won’t have to pay them. If you obtained any of your debts through fraud, you will have to restart paying them when the DRO has ended. If your circumstances change so that you are able to pay some or all of your debts, your DRO may be revoked so you can arrange to pay your creditors (the people or companies you owe money to). To be eligible for a DRO, you must meet these criteria:you owe £20,000 or less, you have less than £50 to spend each month, after paying tax, national insurance and normal household expenses, you’ve lived or worked in England or Wales in the last 3 years, your assets aren’t worth more than £1000 in total you’ve not had a DRO in the last 6 years

An administration order is a way to deal with debt if you have a county court or High Court judgment against you and you can’t pay in full. The debt must be less than £5,000. You make 1 payment a month to your local court. The court will divide this money between your creditors. Creditors listed on the administration order can’t take any further action against you without the court’s permission. To get an administration order you need to fill in an application (Form N92) and return it to your local court. The court decides how much of your debt you have to repay, eg all or just part of it, how much your monthly repayments will be, how long the arrangement lasts, The arrangement is known as a ‘composition order’ if you can’t pay all your debts. To be eligible you must: owe less than £5,000, including any interest and charges, owe money to at least 2 creditors, prove you can afford regular repayments, eg give details of your income, have a county court or High Court judgment against you, which you can’t pay in full.

Applying for an IVA

We will check to see if an individual voluntary arrangement (IVA) is right for you by reviewing your individual circumstances taking your income, your day-to-day expenditure and debt level into account. We will never suggest an IVA unless we truly believe it is the best option for you and you are happy with your proposal. If we do not think it is your best option, we will recommend the best place for you to contact for free money advice on your situation. An informative guidance leaflet can be downloaded by clicking here. The leaflet is for people thinking about making an individual voluntary arrangement (IVA). It aims to help you understand what is involved before you commit yourself..

Usually you will: have unsecured debts of more than £5,000, have a regular income and a monthly surplus of at least £70. Re10 views the IVA as a flexible financial plan, which revolves around your needs and puts you back in control.

An IVA can only be prepared for you by a qualified licensed insolvency practitioner, so there are inevitable professional fees. We will only charge you a fee if your Individual Voluntary Arrangement (IVA) is proposed and accepted by your lenders. All fees are paid out of – not in addition to – your regular affordable monthly payments. Once your IVA has been accepted, the fees you pay will be: 1) A nominee’s fee 2) Supervisor’s fees 3) Costs/expenses Nominee’s fee This fee covers our professional costs and charges for arranging your IVA including: Preparing your IVA proposal – which sets out the proposed terms of your IVA and provides your lenders with a detailed snapshot of your finance Organising the creditors’ meeting, in which lenders can request changes to the terms of your IVA It will typically be between £1,000 and £3,000 and is often capped to an amount equal to your first 5 months’ IVA payments. The Nominee’s fee will be paid first before any payments are made to your lenders. Supervisor’s fees The Supervisor’s fees cover the ongoing work involved in running your IVA and is calculated as a percentage of “realisations”: typically it is charged at 15% of any money received by the Supervisor and distributed to your lenders, such as your monthly contributions, any assets (e.g. the equity in your property, successful PPI mis-selling claims) and windfalls (e.g. an inheritance) that you receive during the term of your IVA. Costs We are also entitled to claim back the cost of certain expenses (such as postage, insurance, etc) incurred directly in connection with the running of your IVA. The amount of our fees will be clearly set out your IVA Proposal. They must be approved, and may be changed before it is accepted, by your lenders. The average fees paid by our clients are currently: Nominee’s fees £1,383 Supervisor’s fees £1,575 Supervisor’s costs £912

There are some debts that cannot be included in your IVA and will still require repayments throughout and after your plan is completed. We take these debts into account when looking at your income and expenditure to ensure that you can afford the payments laid out in your IVA. Debts included: Personal unsecured loans Payday loans Credit cards Store cards Bank overdrafts Catalogue debts Personal guarantees Debts excluded: Mortgage Secured loans Student loans Court fines

IVA arrangement depends on how quickly we receive the required information from you. The quicker we receive information from you each time it is requested, the quicker we will be able to move. We want you to get the certainty of an IVA as soon as you can. When we receive all the required information from you, we can have a draft proposal created and sent to you for review within 5 working days.

If you have debts with your bank, they can take money owed from the account your wages are paid into, whether you can afford it or not. This is called the Right of Offset. Such debts can be in the form of an overdraft, credit card balance or personal loan. Therefore we do advise that you arrange a new basic banking facility before starting your IVA, if your current bank holds some of the debt that is to be placed in the IVA. People entering into an IVA usually already have some adverse credit history and find it difficult to open a bank account. In this case you need to open a non-credit bearing basic account with a bank that you don’t owe money to. As an IVA is a private matter, your new bank/finance provider does not need to know about your IVA. Talk to one of our advisors for more information.

One of the key advantages of an IVA is that it binds your creditors, legally, to freeze all future interest on your debt. This means your debt level will freeze upon approval of your IVA. The only exception to this rule would be if you are unable to make or keep up with your monthly payments. However, should this happen through no fault of your own, we are often able to agree a variation with your creditors.

If your IVA proposal is not approved, we will speak to your creditors to understand why it rejected and see if there are any changes we can make to the proposal to gain approval. If your proposal is still rejected, we will then discuss your alternative options with you.

Yes, your creditors may require you to raise some funds from your property by way of re-mortgage in your final year of the IVA, if there is available equity (the amount left after your mortgage and other secured creditors have been considered). If you have less than £5,000 of equity in your home then it is unlikely the equity in your house will be included in your IVA. Please read the equity clause within your proposal to find out more or speak to one of our team.

Yes, of course. You can rent a property, be part of a shared ownership scheme or live with parents whilst in an IVA.

As long as your monthly mortgage payment is not greater than your monthly rent there should not be a problem. You must also be able to confirm that the costs of running the new property will not be greater than those of your rented property.

You may have loans other than your mortgage that are secured on your home. The most common will be ‘homeowner loans’ or ‘debt consolidation loans’. Secured loans cannot be included in your IVA and must still be repaid as well as your monthly IVA payments. If you do not continue to make payments on your secured loans, your assets (home, car) could be at risk.

Yes. All assets owned by you (other than household items) need to be included in the IVA.

A self employed IVA? Yes, of course. However, IVAs for self employed people generally require additional documentation such as accounts, tax returns and a cash flow forecast.

Yes, you can be in an IVA if a business owner. IVAs have helped thousands of sole traders, partners or company directors remain in business when faced with severe financial problems. If you own a company or are a director of a limited company, you can retain your position when in an IVA, which is not the case if you were made bankrupt.

Unlike bankruptcy, an IVA does not legally restrict your ability to hold positions such as a Justice of the Peace or Governor of a School. However, there could be restrictions in the case of a Company Director depending on what the Company’s Articles of Association states. It can also be the case that it is written into some employer’s terms of employment that entering into an IVA results in dismissal, particularly if they worked in the area of insolvency.

Yes, you can enter an IVA if you are not in full-time employment or unemployed, as long as you have a monthly surplus of at least £70 and meet the other criteria then you can apply for an IVA.

If you have joint debts, then you are both liable for the whole amount of the joint debt, even if only one of you goes into an IVA. An IVA will only deal with your liability. Any joint party will remain responsible for repayment. Where there is a possibility that an IVA may adversely affect another person, we will advise the affected party to take independent advice, although they could also apply for an IVA.

What if?

Depending on your circumstances, we may be able to offer a short payment break to give you time to regain employment and return to a position of being able to afford your monthly repayments. We will also look at whether we need to adjust the amount of your repayments based on your new income. It is worth noting that a payment break does not mean that the missed payments will be removed from your plan. You will need to recoup these costs by either extending your plan, increasing your payments temporarily or making a lump sum payment. We understand the impact losing a job can have on your personal life and we will always do our best to find a solution that fits your circumstances, which is why it is important that you call us as soon as you anticipate any changes.

We will look at the individual case when it comes to a change in circumstance but usually with redundancies the following process takes place: We will look at how much you will receive as part of your redundancy package and depending on the size, will decide how much of it (if any) you will give to your creditors to repay your debt, while still allowing you to keep enough of it to continue to make your monthly contributions and expenditures for the next 6 months. If you become employed again within 6 months, we will review how much of your redundancy you will then need to contribute toward your IVA and what your monthly payments will be going forward. If you are not employed at the end of 6 months, we will need to re-evaluate your circumstances and affordable monthly payments. Please remember that you are still in a legally binding contract with your creditors and the repayment of your debts still stands but we will do everything we can to come to the best solution for you.

It will depend on individual circumstances and your maternity pay entitlement. We can look at reducing your monthly payments on a temporary basis to reflect your drop in salary during your leave. We may also be able to offer a payment break from your IVA to allow you to adjust before we reintroduce payments. It is worth noting that you will still owe the same amount of money set out in your IVA, but your payment may be increased temporarily or the length of your plan extended to recoup the missing funds. When your maternity leave comes to an end, we may need to assess your circumstances to account for any financial changes to your situation; for example, you may decide to go back to work part-time and your income is then reduced or you may be entitled to child benefits which will see your income increased. Any changes will then need to be reflected in your future payments.

If you have a windfall during your IVA or your monthly income increases, you will need to let us know so that we can look at how this affects your IVA. If your monthly income increases, it is expected that your payments will eventually increase with it. If your windfall is not enough to pay back all monies owed, it is expected that the full amount would be given to your creditors on top of continuing your current monthly payments. At the end of every 12 months during your plan, we will conduct an Annual Review to look at any changes and make sure that your payments are still affordable and reflective of your monthly surplus.

If you are struggling to make your monthly payments, the first thing to remember is don’t panic! We are here to help and we always have a solution. As soon as you find yourself struggling, it is important that you get in touch with us to see what we can do for you. Remember you are not alone! We don’t want any of our clients to be worrying every month about whether they can make their next payment. We will always do our best to make sure your IVA works for both you and your creditors. We can take a look at your individual arrangement and any changes in your income and expenditure to see if we can make what is known as a ‘variation’ to your plan. If there have been changes to your income or expenditure or perhaps you have suffered an unexpected expenditure for a car repair or have had to replace a washing machine; we will take this into account and could look at the possibility of a payment break or a change to your monthly payments.

General IVA FAQs

The role of the IP in your IVA is to manage the payments to your creditors and act as a point of contact for your creditors. They will negotiate the terms of your IVA proposal and work on your behalf to seek approval of your draft. Having a qualified professional looking after your IVA takes the worry of having to deal with creditors and, as IPs are industry regulated, are bound by a legal code of practice.

No. Once the IVA arrangement has been agreed your IVA creditors are bound by the terms and as long as you maintain your obligations, (i.e. keep up the payments and tell your supervisor if your circumstances change) they cannot take any further action against you or demand a higher repayment from you.

In order for your proposal to pass, at least 75% of your creditors by value must vote to approve the draft. The good news is that even if one creditor rejects your proposal, as long as the approving creditors hold 75% of value, the proposal will be accepted. All creditors are then bound to it.

We can’t guarantee that you will be fully recovered in five years but if you’re not, you will be very close to it. On occasion, it can take an extra year but five years is standard practice for most IVA’s. It is also possible that you could recover earlier if there is the option of a lump sum settlement. Changes to your IVA completion date can sometimes come into effect if you are unable to make your monthly contributions for a while due to a change in personal circumstance. It is also important to note that although you will have recovered at the end of your IVA, your credit rating will still be affected for another year.

Whilst waiting for your IVA proposal to be accepted by your creditors, we do advise you continue to make contributions. Even if you cannot afford the minimum monthly payment. Failure to do this can seriously affect your credit rating. The IVA will show on your credit file for 6 years after the approval of your proposal. When you successfully complete your IVA, we will provide you with a Certificate of Completion which you are able to show anyone you wish to confirm that you have successfully completed your arrangement. We will also send a copy of your Certificate of Completion to your creditors so they can update their systems.

If you make all your monthly contributions and stick to the terms of your proposal, then you will not be required to pay any more than what was agreed in your IVA. Any remaining debt you had will be written off by your creditors and you will officially have recovered from your unsecured debt!

In the final year of your IVA, your creditors may ask that you attempt to release some equity from your home, if you are a homeowner and if there is available equity. If there is equity but you cannot re-mortgage, you may have to pay an additional 12 months’ contributions. You can learn more about this in the Equity Clause within your proposal or by calling our team. When you do make your final payment, we will then contact your creditors for agreement to close the IVA and issue you with your Certificate of Completion. This process usually takes between 3-6 months.

Copyright Re10 (Finance) Limited 2018