Common debt FAQs

Frequently Asked Questions regarding debt

What debt help is available in the UK?
What is informal debt consolidation?
Is my credit rating going to be affected?
I am being threatened with court action – what can I do?
How do I go about getting help?
Will I lose my house?
Will I be able to get a mortgage or credit in the future?
How long will it take to get out of debt?
How much will help cost me?
What action can creditors take against me?
Could I lose my job for being in debt?
Will I go to prison for being in debt?
Are IVAs a good procedure when you are in debt?
What are the different types of debt?
What is debt negotiating?
What are the do’s and don’ts of debt?
How do I stay out of debt?

Debt FAQs 1 - What debt help is available in the UK?

There are several charities and several hundred profit making organisations offering advice to people in debt. Money Advice Direct provides best & realistic advice. You can speak with a advice team member now on 0800 074 6918 who will perform an immediate assessment of the situation.

Debt FAQs 2 - What is informal debt consolidation?

There are several organisations that advertise in the National newspapers that pose as 'specialists' advising that if you owe over around £8,000 or more, they "can reduce your debts without the need to borrow". Theses "specialists" will offer services and assistance; but beware! Most of these "specialists" are intermediaries with no relevant qualifications and their advice could prove costly and inadequate. Please enquire about fees prior to signing up.

Debt FAQs 3 - Is my credit rating going to be affected?

During the time you are in debt programme you will be unlikely to borrow more money. This is because you will be who uses credit checking before lending money. A note will be put on your file informing lenders that you have unpaid debts and this may prevent them from wanting to lend you more money.

Please note that for consumers considering a Bankruptcy Order, Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD); that although the consumer may become debt free (subject to terms and conditions) at the end of the Bankruptcy, IVA or PTD period, the effect on their credit rating is likely to remain on file for 6 years. In addition the consumers / debtors name, address and birth date will become public knowledge on the governments “Individual Insolvency Register”. The individual insolvency register (insolvency.gov.uk/eiir/) allows anyone to check, quickly and easily, if someone is bankrupt or has taken out an "individual voluntary arrangement" (IVA).

Please note that for consumers considering a Debt Management Plan (DMP), although the consumer may become debt free (subject to terms and conditions) at the end of the DMP period, if a default notice has been issued the effect is likely to remain on the consumer's credit profile for a lengthy time

Debt FAQs 4 - I am being threatened with court action – what can I do?

If you Fail to comply with the terms of the IVA then the (IP) Insolvency Practitioner must make a formal Non Compliance Report to creditors highlighting the debtors non compliance. The creditors can then recommend that the Supervisor take court action if they want to pursue you.

Debt FAQs 5 - How do I go about getting help?

You should call 0800 074 6918. Getting into debt can be caused by a unforeseen event such as debt arising from disability, debt from ill health or injury or even debt from redundancy or loss of work. Through these difficult time callers can get into debt from personal or secured loans, car financing or mortgages. Many callers have mail order debt or are unable to keep up monthly payments on credit cards and loans and are being chased for late payments as a result. If this is the situation the advice can help provide accurate debt advice.

Debt FAQs 6 - Will I lose my house?

With an IVA, you won't usually have to sell your property, but you may need to offer some of the equity in it by way of a re-mortgage. If you are made bankrupt, losing your home is a strong possibility, but only if there is equity in it.

Please note that for consumers considering a Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD); if the consumer is a property owner and there is sufficient equity in their property the supervisor of the IVA or PTD may require the debtor, to revalue their home and realise the equity to pay off some or all of the debt at some point in the procedure. Please beware of debt advice firms who not state that with an IVA and in a PTD the supervisor may require the debtor, if they are a homeowner, to revalue their home and realise the equity to pay off some or all of the debt.

Debt FAQs 7 - Will I be able to get a mortgage or credit in the future?

If you are in debt or have adverse credit this means that most “high street” borrowers will not able to offer you a mortgage. You may still be able to get the mortgage but you have to speak to an adverse credit lender.

Debt FAQs 8 - How long will it take to get out of debt?

This will depend on how much which insolvency procedure you choose. It also depends on how much debt you owe.

An IVA can take up to 5 years, bankruptcy can take up to 1 year and debt management plan can take many years as they are dependant on what is owed. Also if you live in Scotland then you will be looking at three years for a trust deed.

Debt FAQs 9 - How much help cost me?

Money Advice Direct offers confidential and non-judgmental advice and will put you in touch with a licensed professional to arrange your debt solution. Please note that failure to adhere to a debt solution could result in further financial problems. Please note that whilst initial advice is free, fees may be payable depending on the solution provided. Please note for consumers wishing to enter into a debt management plan, Money Advice Direct refers consumers to commercial debt management companies to provide this service. Please note that commercial providers of debt management services charges fees for their services. Please beware of commercial debt advice providers that imply the service is unbiased and provided by a source of free and independent debt advice

There are many companies in the UK that charge a fee. Money Advice Direct is an established confidential and non-judgemental debt management service for people who want to get debt free (subject to terms and conditions). We provide best advice at all times in finding the best solution for you. If you instruct an Insolvency Practitioner on our advice panel there will be administration, nominee and supervisers fees charged for IVAs because the monthly payments, this structure will cover the payments to your creditors as well as any legal fees for setting up the IVA scheme.

There have been widespread reports of firms of cowboy debt advisors taking extortionate amounts of money from consumers and business people. In return, the debtor gets little or no relief from his/her situation. Don't let this happen to you: If you are concerned about your personal financial position - or that of a company you own or manage, make sure you seek independent, professional advice.

Debt FAQs 10 - What action can creditors take against me?

Telephone you demanding payment
Charge you for late payments
Charge you administration fees)
They can freeze your account in so that you cannot use it anymore.
They can issue a default notice
They can use a debt collection company to chase payment
They cab threaten to take you to court.
That can issue a County Court Judgment (CCJ) against you, which will affect your credit rating?
They can and get an “Attachment of Earnings” order, which will deduct payments directly from your wages
They can petition for your bankruptcy.

Debt FAQs 11 - Could I lose my job for being in debt?

If you work in the financial services sector (FSA) then you may to be able to continue employment. Also if you work in some of HM Armed Forces or the Police force being in debt may cause you to lose your job or stop moving up the property ladder. In all other employment sectors consumers are advised to speak to their HR department or refer to their employment contract.

Debt FAQs 12 - Will I go to prison for being in debt?

Being sent to prison for debt is a great fear for many people with serious debts. In most cases, it's very unlikely. A prison sentence is a last resort, and apart from fraud it can happen only for specific types of debt.

These include if you haven't paid:

fines from the magistrates' court;
your Council Tax or business rates: or
Maintenance for your husband, wife or children.

Debt FAQs 13 - Are IVAs a good procedure when you are in debt?

An IVA or Individual Voluntary Arrangement is often the best route out for many people with debt problems. It allows you to keep your house, avoid bankruptcy, pay money to the people you owe, and won’t ruin your credit rating in the same way bankruptcy does. An IVA is a good procedure because of the following:-

Reduce your Debt Write off a substantial amount of your debt with an IVA, subject to the creditors approval. Please note that for consumers considering an Individual Voluntary Arrangement (IVA) in most cases of an IVA creditors will be prepared to write off no more than 70% of a debt and in some cases 60%. Also note all customers can achieve the stated 'write-off' because every case considered is different.
Reduce your repayment period In 60 months with an IVA you will be debt free (subject to terms and conditions), subject to the creditors approval therefore a guaranteed outcome favourable to the consumer in negotiations with creditors is not always possible.
Reduce your monthly debt repayments Only pay what you can afford with an IVA
An IVA will stop interest & charges, subject to the creditors approval.
Your debts, covered by the IVA will not increase with an IVA
An IVA will stop creditors chasing you. Please note that for consumers considering an Individual Voluntary Arrangement (IVA) be a ware of any claim that implies that when the consumer is on an IVA creditors will no longer contact them. Whilst an IVA is legally binding and creditors are refrained from contacting the debtor regarding payment of the debt they may still contact the debtor in cases of promotional material and/or certain other circumstances.
If you enter into an IVA you will not receive letters or phone calls chasing debts.
An IVA will stop court actions against you for the creditors bound by the IVA.

Please note that for consumers considering an Individual Voluntary Arrangement (IVA only unsecured debts are to be included e.g credit cards, unsecured loans and bank overdrafts. Please note that at the end of the period those debts that are not included such as secured debts, Government fines and child support payments will remain to be outstanding.

Debt FAQs 14 - What are the different types of debt?

Credit debts

Credit debts are usually classed as non-priority debts. This means the action that creditors can take against you to recover their money is usually less severe than for debts such as mortgage arrears and council tax arrears.

Business debts

If you own your own business and are having financial difficulties, link straight to Business Debtline (external website). Also find details of its free business debt advice phone line.

TV License debt

If you do not have a TV Licence the matter will probably be referred to the Magistrates' Court in order to fine you. If you do not pay a Magistrates' Court fine you could be imprisoned.

Child maintenance arrears debt

The CSA usually collects payments from parents who are receiving Income Support or Income-based Jobseeker's Allowance and who do not live with their children. It may also collect from other absent parents.

Council Tax / Poll Tax arrears

Arrears of Council Tax or Poll Tax should be treated as a priority debt because of you do not pay, your Local Authority can take you to court.

Hire purchase payments

A hire purchase or conditional sale agreement is where the company that has supplied you with the finance owns the goods until you have made the final payment.

Income Tax and VAT arrears

If you owe Income Tax to the Inland Revenue or VAT to Customs and Excise, you should treat these as priority debts. Both Customs and Excise and the Inland Revenue can instruct bailiffs to take goods from your business or home without having to get a court order first. They may also petition for bankruptcy as a way of forcing you to repay the debt.

Magistrates' Court fines debt

If you do not pay the fine, the court can issue a warrant for your arrest and, ultimately, you could be imprisoned for non-payment.

Water Rates arrears debt

Water companies can no longer disconnect a domestic supply if you fall behind with the payments.

Gas or electricity arrears debt

Arrears of gas or electricity should be treated as a priority debt because the utility companies have the authority to cut off your power supply if you do not pay your bill.

Debt FAQs 15 - What is debt negotiating?

You are allowed to negotiate with your creditors and most creditors will consider any reasonable request or offer of repayment that you make. Sometimes, you need to contact creditors several times before they will agree to what you are asking.

What you ask your creditors for will depend on:

what debts you have
whether you have money left over to offer
whether you have belongings worth selling to pay some or all of the debt off
whether or not your situation is likely to get better.

It’s important that creditors can see that what you are asking for is reasonable in the circumstances. So make sure you:

are clear about what you are asking for
always ask to freeze interest. Unless they freeze interest, your debt will carry on growing even if you are making regular payments
tell them what the regular payment intervals you are able to offer, that is, whether you can pay monthly or weekly
explain your situation fully. If you have priority debts, explain to non-priority creditors that you have to pay off priority debts first and say what you are offering to each of your priority creditors
show evidence to support your request or offer of payment, for example, medical evidence if you can’t pay your debts because of illness
mention any changes that you know are going to happen which will affect your ability to pay or the amount you are offering.
Be prepared to contact your creditors more than once.

Keep copies of all your letters to creditors and their replies and a note of any phone calls with them, in case you need them later.

Debt FAQs 16 - What are the do’s and don’ts of debt?

By following some simple rules, people in debt can minimise the distress they face.

Be wary of borrowing more money
Don't ignore the problem
Adopt a wise strategy
Maximise your income
Speak to an confidential and non-judgemental advice service on 0800 074 6918

Debt FAQs 17 - How do I stay out of debt?

Don't let yourself get further into debt
Put some money aside
Don't expect everything to get better overnight
Don't assume you have to pay for advice
Remember that bankruptcy is only ever a last-ditch strategy

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IVA's

The IVA Guide
Money Advice Direct has put together an IVA Guide based on the enquiries and questions that we receive at our helpline offices.

In the guide we cover such subjects as IVA Approval, early settlment of your IVA, missed IVA payments, IVA failure, additional debt claims and much more.
[click here for IVA Guide]

What is an IVA?
The IVA is an extremely powerful tool enabling you to clear your debt and return to a clean financial bill of health. Visit Money Advice Direct's Guide to Individual Voluntary Arrangements (IVAs).
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