Debt Solutions Suitable for Homeowners: Resolve Financial Difficulties and Become Debt Free
July 15, 2017
A borrowing culture in the UK means that financial difficulties are rife. According to CreditAction.org, Britain’s personal debt increased by £1 million every 40.6 minutes in January 2015. Just 12 months earlier, it increased by £1 million every 5.3 minutes. A debt solution, such as an IVA, can help a homeowner to balance household bills.
What Debt Solutions are Available for Homeowners?
There are fewer debt solutions available for homeowners than tenants, but a Debt Management Plan or Individual Voluntary Arrangement (IVA) can help someone that owns a home to become debt-free. Homeowners don’t qualify for a Debt Relief Order (DRO) and personal bankruptcy should normally be avoided due to its connotations.
Become Debt Free with an Individual Voluntary Arrangement
An Individual Voluntary Arrangement is the principle alternative debt solution to personal bankruptcy. A minimum of 75 per cent of creditors, in terms of value, must vote in favour of the agreement. Debtors provide a breakdown of all household bills in order that affordability can be established. If voted in favour of, an IVA is legally binding on anyone that is owed money by the debtor.
There is a requirement that a homeowner should be employed full-time and owe a minimum of £15,000. This is because the IVA debt solution requires an Insolvency Practitioner to manage and administrate the agreement. Whilst not an up-front fee, their services can cost up to £6,000. Individuals that owe a smaller amount may wish to consider a Debt Management Plan.
An IVA often contains a clause requiring that a remortgage is taken out at the end of year 4 in order that up to 80 per cent of the available home equity can be contributed towards the agreement. Once agreed, an Individual Voluntary Arrangement allows a homeowner struggling with financial difficulties to become debt-free in just 60 months.
How a Debt Management Plan Can Help Manage Household Bills
Unlike the Individual Voluntary Arrangement (IVA), a Debt Management Plan isn’t a legally binding debt solution. It involves paying a revised monthly amount to help alleviate the pressure brought on by financial difficulties. There must be a minimum of 3 creditors and that the debtor must also be able to contribute at least £100 per month towards the agreement.
Whilst free Debt Management Plans are available, most are offered by private companies. They impose a charge of approximately 15 per cent of net contributions for their services. The main problem with this debt solution is that it can take many years to become debt-free.
A Debt Management Plan doesn’t result in debt being written-off, but it can lead to further charges and interest being frozen. It helps a homeowner manage any unsecured debts in order that they can concentrate on paying the mortgage and managing essential household bills. It can also help prevent creditor harassment.