This information is for people who have high levels of debt and are struggling to repay it.
In England and Wales there are at least 3 effective ways of getting rid of debt that you
I will outline below the main differences between the three processes that can be
followed in England and Wales. I deliberately omit Debt Management as this is informal procedure
and offers no certainty of success.
Individual Voluntary Arrangement – IVA
The IVA is available to anyone who has become insolvent and is under pressure from
creditors. It is useful for those who own a property and want to avoid losing it in
bankruptcy. You can also use it if you live in rented accommodation.
Conditions for entry into IVA:
1. Because an IVA is quite expensive, you should have debts of more than £10,000.
2. You must owe money to at least three creditors.
3. 75% of your creditors must agree to sign an IVA (the amount of your debt is taken into
4. You must have a regular job and a regular income – either part-time or full-time.
5. You must be at least 18 years old but the period for repaying your debts must not
include the period of your pension.
IVA – advantages:
1. Interest on the debt and additional creditors’ charges are frozen
2. Monthly instalments are determined on the basis of your financial capacity
3. You get rid of the debt after 5 – 6 years
4. You stop being pressured in any way by creditors
5. You avoid bankruptcy
6. All legal and recovery actions against you are stopped
IVA – disadvantages:
1. Minimum debt is £10,000
2. High IVA cost: minimum of £5,000 – This is because an IVA can only be set up by a
professional lawyer or accountant, known as an insolvency practitioner (IP).
3. You will find it difficult to get any credit in the future – your IVA entry will be visible on the
registers for 6 years
4. You will not be allowed to use your credit cards
5. You will not be allowed to take out any credit until you complete the IVA
6. If you do not meet all the conditions for an IVA or do not comply with them you may be
Debt Relief Order (DRO):
The law regulating DROs came into force in 2009. It aims to protect really poor people from
bankruptcy. Also those who cannot afford an IVA.
The procedure takes about a year and during this time no creditor is allowed to take any legal action
against the debtor. After a year, all debts on the list included in the DRO application are written off.
You cannot apply for a DRO yourself. You must apply to an authorised adviser (Insolvency
Practitioner) who will first check that you meet all the conditions for a DRO.
The cost of the application is £90 but can be spread over 6 monthly instalments.
What conditions must be met to apply for a Debt Relief Order?
1. Debts must not exceed £30,000 and should be of different types.
2. You must not own a property.
3. You must have no more than £75 a month left over after paying all necessary housing and living
4. You must not have savings or valuables worth more than £2,000.
5. If you own a car, it must be worth no more than £2,000 unless it is a disabled adapted vehicle.
6. You have lived or worked in England or Wales for at least three years.
7. You’ve not had a DRO in the last 6 years
Which solution to your debt problems is best for you? It depends on your financial situation, your
professional situation, the amount of your debt.
If your debt is not too high, you can apply for a DRO. However, you must remember that you must
not have more than £75 per month left over for 1 year.
If you have a permanent job and can afford the monthly repayments, you may consider joining an
IVA. However, you should be aware of the high cost of the process.
If you have high levels of debt from your day-to-day activities as well as from your business, and you
want to get rid of it quickly and effectively, you should consider filing for bankruptcy.
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