Debt Consolidation Help

Many people experiencing serious debt problems look to the government for help with getting out of the situation. It is fair to say that neither in the UK or the US do the government offer anything that could be described as direct debt management help. The actual hands on help and debt management services are all provided by independent commercial companies, but government does have a role to play in legislating for the type of help that can be provided.

In the UK, as part of the Insolvency Act of 1986, the government introduced a scheme called the individual voluntary arrangement, which has become known as an IVA. At the time this was aimed primarily at small businesses, with the intention of providing an alternative to declaring bankruptcy. It has proven so popular that its use has spread widely and is now commonly used as a way of solving serious consumer debt problems.

Rather than providing direct government debt management, what the UK government did was legislate for a mechanism that allowed specialist debt companies to provide a system that would allow people to pay what they could towards their debts, and then write off the rest.

An IVA usually lasts for five years and is a legally binding agreement that cannot be easily changed or cancelled. The idea is that for the term of the IVA you make a regular monthly payment based on what you can actually afford, and at the end of the agreement any debts left are written off. How much is written off will obviously depend on how large your debts were and how much you could afford to pay each month, but for some people it can mean writing off about 70% of their debt.

This government backed scheme is different to a debt management plan in several ways. Whereas debt management plans are informal agreements that you can get out of with relative ease, an IVA is a formal agreement and so is much more binding. For example, if your circumstances changed and you came into some money, you could not simply stop the IVA. You would probably be expected to pay a large part of your new income into the IVA, so you could end up repaying your debts in full rather than writing anything off.

A positive consequence of the formal nature of the IVA is that there is a power to compel unwilling creditors to join the scheme. Provided that you can get the agreement of at least 75% of your creditors to join the IVA, then the remaining ones have to join it even if they do not wish to. This can be helpful if you have a minority of difficult or unwilling creditors.

To be eligible for an IVA you need to be a UK resident and have at least £15,000 worth of unsecured debts to a few different creditors. If you think you may wish to look into this, the best way to start is to approach specialist companies to examine your situation and provide advice on the best way forward for you. This can be done easily and without obligation, so it is best to apply to a few reputable organisations before deciding what to do.

By: K D Garrow

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Find out more about government debt management and the IVA UK debt solution on the author’s Debt UK website, which offers free, unbiased advice on a range of debt related issues.

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