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Debt Management Plans Used to Deal with Growing Debts 24 September 2010
Andrew Graveson (about the author)

According to The Daily Telegraph, an estimated million people or more in Britain are currently suffering from ‘problem debts’, as recession, increasing unemployment and the threat of public sector cuts take their toll. The financial concerns have been far reaching throughout society with even the Duchess of York considering drastic options to deal with her debts.

There are many possible solutions to problem debts, with debt management plans becoming an ever more popular option. Those worried about their debts should not rush into any decisions as the consequences can be far reaching. Proper research should be carried out to examine all the possible ramifications of each, and to find the answer most appropriate for your individual circumstances.

The heavily advertised IVA (individual voluntary arrangement) is one such possibility. Typically IVA’s last for five years during which the individual must pay an amount they can reasonably afford towards the balance of the debts. In addition they are expected to contribute the value of any assets they own (most often the equity in their homes). The advantage for the debtor is they become debt free after five years, but the impact on their credit rating may be similar to bankruptcy. Some homeowners conclude the potential risk of having to relinquish the value of their assets makes an IVA unsuitable.

Bankruptcy itself can be a suitable option for some people. As with an IVA, an individual will pay an amount they can afford towards the debts, though usually over the shorter period of three years. Assets also have to be contributed leaving bankruptcy as an absolute last resort for many homeowners.

Debt management plans represent an “informal” option and alternative. Unlike IVA’s or bankruptcy, a debt management plan is not a formal legal arrangement. It is in fact a negotiated agreement between a debtor and their creditors to repay the debts at an affordable rate. Many creditors agree to freeze interest and charges (or at least reduce them) during the plan, however this cannot be guaranteed. Unlike an IVA or bankruptcy, a debt management plan doesn’t offer any formal legal protection against the creditors.

Source: Debt Management Plan Forum