A Debt Management Plan is an agreement between you and your creditors to pay all of your debts.

Debt management plans are usually used when either:

1. you can only afford to pay creditors a small amount each month you have debt problems but will be able to make repayments in a few months

You can arrange a plan with your creditors yourself or through a a licensed debt

management company for a fee.

If you arrange this with a company:

1. you make regular payments to the company

2. the company shares the money out between your creditors

The Money Advice Service has information on organisations that cangive you free advice about whether a Debt Management Plan is right for you.

Get a Debt Management Plan

1. Set up a plan with a debt management company authorised by the Financial Conduct Authority (FCA). Find an authorised company.

2. The company works out your monthly payments. You’ll have to give details about your financial situation, eg your assets, debts, income and creditors.

3. The company contacts your creditors and asks them to agree to the plan (they don’t have to).

Unless stated in the agreement, your creditors can still:

1. ask you to pay your full debt at a later date

2. take action to recover their money even if you keep up your payments

Costs

Some companies will charge:

1. a set up fee a handling fee each time you make a payment

Make sure you understand the costs of your plan and how you pay for it.

Eligibility

Debt Management Plans can only be used to pay ‘unsecured’ debts, eg debts that haven’t been guaranteed against your property.

Your responsibilities

Your plan can be cancelled if you don’t keep up your repayments.

If you have a debt problem, one of your options for sorting it out might be bankruptcy. You can apply for bankruptcy if you can’t pay back your debts.

As well as applying for bankruptcy yourself, someone else you owe money to (a creditor) can apply to make you bankrupt, even if you don’t want them to. For a creditor to make you bankrupt, you must owe at least £5,000.

Remember, bankruptcy might not be your only option and it might not be the best one for you. One of your other options might be a debt relief order. You could be able to apply for a debt relief order if you have debts, income and property below a certain amount. This is a cheaper alternative to bankruptcy.

Advantages of going bankrupt

When the bankruptcy order is over you can make a fresh start - in many cases this can be after a year.

Other advantages of going bankrupt include: 1. The pressure is taken off you because you don’t have to deal with your creditors 2. You're allowed to keep certain things, like household goods and a reasonable amount to live on 3. Creditors have to stop most types of court action to get their money back following a bankruptcy order the money you owe can usually be written off

Disadvantages of going bankrupt

To apply to go bankrupt you’ll need to pay a £680 fee. Other disadvantages of going bankrupt include:

1. if your income is high enough, you’ll be asked to make payments towards your debts for 3 years 2. it will be more difficult to take out credit while you're bankrupt and your credit rating will be affected for 6 years 3. if you own your home, it might have to be sold (but you may be able to apply to your local authority for re-housing) 4. some of your possessions might have to be sold, for example, your car and any luxury items you own 5. if you are, or are about to be, the right age to get your pension savings, these might be taken 6. some professions don’t let people who have been made bankrupt carry on working 7. if you own a business it might be closed down and the assets sold off 8. going bankrupt can affect your immigration status 9. your bankruptcy will be published publicly (although if you’re worried you or your family maybe the victims of violence, you can ask that your details aren’t given out)

What happens at the end of bankruptcy

Your bankruptcy will normally end after a year. The Official Receiver will tell you when it is over. Most debts that haven’t been paid will be written off although some debts like court fines and student loans can never be written off.

Even when you’re no longer bankrupt, you could have a bankruptcy restriction order made against you. This can last up to 15 years and will restrict your financial affairs. This order could be made if, for example, you do not co-operate with the Official Receiver, or you take on debts knowing that you won’t be able to pay them back.

An Individual Voluntary Arrangement (IVA) is an agreement with your creditors to pay all or part of your debts. You agree to make regular payments to an insolvency practitioner, who will divide this money between your creditors.

An IVA can give you more control of your assets than bankruptcy.

The Money Advice Service has information on organisations that can give you free advice about whether an IVA is right for you.

Get an Individual Voluntary Arrangement (IVA)

Use an insolvency practitioner to get an IVA.

Your insolvency practitioner works out what you can afford to repay and how long the IVA lasts. You’ll have to give details about your financial situation, eg your assets, debts, income and creditors.

Your insolvency practitioner will contact your creditors. The IVA will start if the creditors holding 75% of your debts agree to it. It will apply to all your creditors, including any who disagreed to it.

An IVA will stop your creditors taking action against you for your debts.

Your responsibilities

Your IVA can be cancelled by the insolvency practitioner if you don’t keep up your repayments. The insolvency practitioner can make you bankrupt.

You may still be able to keep your business running, if you have one.

Public records

Your IVA will be added to the individual insolvency register. It’s removed 3 months after the IVA ends.