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There are mainly four different types of debt solution avilable.

1. IVA (Individual Voluntary Arrangement) - Government regulated
2. Debt Management Plan - Self regulated
3. Trust Deed (Scotland Only) and
4. Debt Consolidation

While a debt consolidation loan is simple as taking one loan to pay back other loans; IVA, Trust Deeds and Debt Management Plans are a bit more complicated. Read below to find out more about these options.

IVA (Individual Voluntary Arrangement)

An Individual Voluntary Arrangement - IVA is a formal contract or arrangement between you and your creditors where you will come to an agreement with people you owe money, to make reduced payments towards the total amount of your debt in order to pay off a percentage of what you owe. This is the main purpose of IVA. Generally after 5 years your debt is classed as settled. Due to its formal nature, an Individual Voluntary Arrangement - IVA has to be set up by a licensed professional called an Insolvency Practitioner (IP).

Based on your income and affordability, you can arrange for monthly payments to clear the arrears. This can be done within a reasonable and fixed period of time (normally 5 years). Any interest and debt charges will be frozen and creditors will be forbidden from demanding additional payments. Once the final payment is made, any outstanding debt is legally written off. The arrangement can write off up to 65% of your debts (subject to your circumstances).

• After the initial discussion with your insolvency practitioner, a recommended course of action will be devised. Your Insolvency Practitioner will look at whether a debt management plan or an Individual Voluntary Arrangement is more suitable for you or not. This plan will be sent to you to read and sign, once you have signed and sent a copy back to your insolvency practitioner and give him permission to proceed, he/she will then continue with the proceedings.

• Your insolvency practitioner will than draw up a set of proposals. This proposal will include details such as your income and expenditure, details of your creditors, a short history of how the debts built up, and proposal for payment (this proposal includes the amount of money you will be able to pay back every month and the duration you will be paying back for). At this stage the best advice is that you read through all the documentation and ask any further questions.

• In special circumstances your insolvency practitioner may need to send a copy of the proposal to your local County Court for approval and request an interim order. This interim order will protect you from any further court action, which includes any bankruptcy proceedings.

• The next step is, proposal and an interim order will be sent to your creditors along with the schedules and all other details, date and place where the creditors meeting will be held. Your insolvency practitioner will expect you to attend this meeting so that if there are any points that arise in the meeting could be clarified without further delay among you and your creditors. For an IVA to be approved a 75% vote is needed from the creditors. If the proposal does receive 75% vote and the IVA is approved, it becomes legal binding on all creditors including those who did not vote.

• After the meeting takes place a supervisor will be nominated who will look after the IVA. A Chairman's report will be sent out to all the creditors and their agents; this will give them the outcome and any details of the vote. Any modification to the proposal will also be confirmed at this point.

• A supervisor will oversee the IVA arrangement throughout the duration. On your part, you would make one monthly payment in an account held in your name; from which payments will be sent to your creditors. Your IVA supervisor will carry out an annual review of your income and expenditures, this report will be sent to you and to your creditors provided that you stick to the payment and the terms of the IVA, and at the end of the arrangement your debts will be written off.

Key points of an individual voluntary arrangement (IVA)

• A plan of action, payment methods to the creditors which need to be approved by means of vote by the creditors.

• If a voluntary arrangement gets approval, a bankruptcy order can be cancelled.

• The public register holds information on the individual voluntary arrangement for two years after the date of either the completion or termination of the arrangement.

• For an IVA proposal to be approved if he is at least 75% full from the creditors in the creditors meeting.

• if the applicant fails to maintain payment to the creditors, and they can apply for bankruptcy of the individual

What happens next?

Once a decision has been made that an Individual Voluntary Arrangement (IVA) is right for you, you will be asked questions regarding your current financial situation. Based on the information you have given, a repayment amount will be agreed with you. Once proposals have been drawn up you will need to check and sign these and return them to your Insolvency Practitioner (IP).

Applications are usually made at the court for an Interim Order. This stops any creditor from taking legal action against you.

The Individual Voluntary Arrangement (IVA) will be legally binding as long as you keep up the repayments, when the term of your agreement is finished; you will be free from these debts regardless of how much has been paid off.

This arrangement is subject to review. This is to check any change in your circumstances during this period.

It is very important that consumers do not confuse an Individual Voluntary Arrangement (IVA) with a Debt Management Plan, which is not legally binding.

When an Individual Voluntary Arrangement (IVA) is accepted the IP's role becomes that of supervisor, monitoring the Individual Voluntary Arrangement - IVA's progress and ensuring that the terms and conditions that were agreed to at the creditors meeting are properly adhered to.

It is the debtor's responsibility to pay the agreed payments to the IP who will then ensure that these payments are distributed to all creditors on a pro-rata basis in accordance with terms and until the successful completion of the Individual Voluntary Arrangement (IVA). It is in the debtors own interest to maintain their payments as failure to pay will almost certainly result in the failure of the Individual Voluntary Arrangement (IVA).

Debt Management Plan

In the area of debt elimination some people like the idea that they have a contract with the Debt Management Organisation, and believe that they therefore have more control over how their debts are treated:

• You will have almost instant access by phone to the Debt Management Organisation and will not have to wait to see someone
• some people like the anonymity of a telephone service run by a Debt Management Organisation
• You do not have to do any work in relation to your debts, for example, drafting letters to creditors
• There is only one payment to make - to the Debt Management Organisation - and the company distributes the money to the creditors.
• You do not have to pay several different companies. Instead only one payment.
• If the plan is carried out successfully all Interest and charges are usually stopped.
• You only pay what you want to so that you have enough left over for a healthy social life.
• You will no longer need to speak to your creditors in order for debt elimination to take place

What kind of debts can I include in a debt management plan?

It's very important that you understand what kind of debts you can include in a debt management plan; debts which have underlying security related to them cannot be put into a plan.

You need to remember:

• If you bought a car on finance and you have fallen behind in making payments towards your arrangement, your car may be repossessed.
• If you fall behind making repayments towards your mortgage or your secured loan, your home can be repossessed.

Basic rules in dealing with debts that cannot be included in a debt management plan:

• Contact your creditors as soon as possible, and let them know that you are having financial difficulties. Your creditor may be able to help you by proposing a repayment plan which is easy for you to follow.
• When contacting your creditors, if the person you're speaking to does not seem to be helpful or you're finding it difficult to pass your message across, ask them to pass you on to somebody senior who may be able to help you further.
• Make sure you contact all those creditors that you owe money to, which has a security attached to the borrowing.
• As a rule of thumb, to not ignore the letters and telephone calls from your creditors. Doing this will not help the problem; it will only make it worse.
• Think twice if you want to take a consolidation loan.
• Take some time to drop all your debts and the amount that you owe, and prioritise those states that needs to be paid urgently.
• If you receive a letter from the court, tried to respond to these letters. Because not doing so will only show your creditor that you are trying to ignore the problem. Try to attend any summons to the court; this will give you a chance to explain your version of the story

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