One of the most stressful periods of our lives begin when we are unable to pay off the burgeoning amounts of debt piling up behind the scenes. Nevertheless, it is not always easy to find such a quick solution when it comes to long-term debts, stern creditors and decreasing liquidity.
However, not all hope is lost. There are still some very convenient ways in which you can be free of these debts in a certain amount of time. Essentially, the two pathways that you may take are IVA & Trust Deeds.
Individual Voluntary Agreement (IVA)
Primarily, an IVA is an agreement between you and your creditors. The terms and conditions of an IVA allow you to pay back your debt monthly without any extra interest in a certain amount of time.
You may pay your debt only partially or the full amount depending upon what you can afford. The period allotted is 60 months or five years. As such, you may pay a certain amount monthly for 60 months as agreed.
If, by any chance, you are not able to pay the complete amount of the debt, the remaining unpaid amount is written off at the end of five years. Therefore, one of the benefits of having an IVA is that you are not charged any interest and you only pay what you can afford.
The agreement is legally binding both on you and the creditors and is overseen by an Insolvency Practitioner (Trustee). However, you will only be eligible for an IVA if you have unsecured debt that is equal to or more than 5000 pounds and you live in England, Wales or Northern Ireland.
If you fail to pay the agreed monthly amounts, the IVA becomes void and creditors can enforce their rights to claim the payments. Furthermore, if your circumstances allow you to pay the debt in full while the IVA is active, you will be required to pay accordingly.
Quite like IVAs, but only available to those living in Scotland, Trust Deeds can help debtors significantly in reducing their debt. Just like an IVA, a Trust Deed is an agreement between you and your creditors and you must have at least 5000 pounds of unsecured debts.
However, the period is shorter, requiring you to pay the agreed monthly payments within 48 months or 4 years. In addition, with a Trust Deed, you may want to get a protected status so that creditors do not exploit their legal rights to settle the debts.
To have a protected Trust Deed, your information is stored in the Register of Insolvencies and is constantly updated to inform creditors about your protected status.
The advantage with such a structure is that unlike an IVA where all your assets should be transferred to the Trustee, a Trust Deed gives you the freedom to choose which assets you would like to transfer.
However, this may mean that your creditors might refuse to enter a Trust Deed as they might be under the perception that you are protecting the assets which can potentially pay off the debt.
It is strongly advised to consult an IVA or a Trust Deed expert to resolve your debt issues accordingly.