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An Individual Voluntary Agreement is an agreement made with your eligible creditors. It is designed to address any outstanding debts that you may have. After it is agreed, you must make monthly payments as per your arrangement, usually within a period of five years. Once you have made the necessary payments to your agreement, the remaining debt is cleared.

An IVA, however, does not cover all unsecured debts. The following debts are excluded:

• Mortgages
• Student loan
• TV license arrears
• Hire purchase agreements
• Child support arrears
• Social fund loans
• Court fines

You will be required to pay these debts as normal. Additionally, you will need a 75% majority vote from creditors who vote to approve your proposal. Once the IVA has been accepted, we will manage and maintain contact with your creditors.

Your credit report will show an IVA for six years after you have entered it. This will affect any future credit applications whilst it remains on your report. You may also be asked to disclose previous insolvency periods when applying for future credit.

A Debt Management Plan (DMP) is intended to help those struggling to repay borrowed money. It ensures debts are paid off in full on the condition that the requisite payments are successfully maintained over time. The payment plan is calculated based on what you can realistically afford, not just on what is owed.

Your creditor may reduce the amount of each of your payments, which could subsequently increase the time it takes to repay the remaining debts. Some creditors may also reduce interest and any additional charges on your payments. However, this is never guaranteed and depends on the creditor in question.

Using a DMP negatively affects your credit score because it means you would have initially failed to meet your contractual obligations. As a result, your credit report may also display the specific debts that your DMP is being used for.

Debt consolidation is a form of refinancing whereby a debtor enters a new credit agreement and consolidates all existing debts into one larger loan. Depending on your individual situation, level of debt and affordability, debt consolidation can be very beneficial.

Bankruptcy is a formal debt solution that allows you to clear your debts within a 12-month period and you can apply for it online. Filing for bankruptcy can have negative long-term repercussions so it’s important to consider them all before your application. It is particularly ideal if you cannot afford to pay off your debts in a satisfactory period of time. Furthermore, if the total debt amounts to more than your income and assets combined, bankruptcy becomes an even better option.

Creditors can also submit requests for your bankruptcy. If you fail to make repayment to an IVA, for example, your IVA supervisor can apply for your bankruptcy.

The full bankruptcy fee in England and Wales is £680. This consists of an Official Receiver fee of £550 and a £130 application fee. The total fee must be paid in full before your application can be processed. However, there are monthly payment options available if you cannot afford to pay the fee in a single instalment. You would still need to complete your monthly instalments before your application can be processed.

Bankruptcy will appear on your credit report for a total of 6 years. Any further credit applications made during this time will have a lower chance of being approved. If a lender chooses to accept you, the borrowing rates on the loan may be a lot higher than usual.

Some lenders require that you inform them of any previous bankruptcies as part of your lending request. This could have long-term implications on your ability to receive credit and is exactly why you should take this step with caution.

If you’re uncertain about bankruptcy, a Debt Relief Order is another option, which also lasts for 12 months. The application fee is £90, which is paid directly to the Insolvency Service. To be eligible for a DRO you must meet the following criteria:

• You have qualifying debts under £20,000.
• You have total assets amounting to less than £1000 (excluding vehicles).
• You have a monthly disposable income lower than £50.
• You do not own a home.

Like bankruptcy, a DRO will remain on your credit report for 6 years, which can influence decisions on future credit applications.

To learn more about how to manage your finances, visit the Money Advice Service website. They are an independent service set up by the government to offer free debt advice and can answer any further questions you may have.