With increasing numbers of companies advertising about "Government-backed" debt solutions we've decided to write an article to clear up the confusion.
Some debt solutions are described as formal, while others are informal. When entering into an informal debt solution, a request is made to freeze or reduce interest and charges, however this cannot be guaranteed.
An informal debt solution, such as a debt management plan, will continue until all of the debt has been repaid. It's informal because either you or your creditors can start and stop the agreement with one month's notice.
A formal debt solution uses British laws to set an arrangement in place which both you and your creditors are bound by. Laws are created by Government, however, the Government is not backing people entering the solution.
IVA Government Help
A debt solution which is sometimes considered as a Government debt solution is an Individual Voluntary Arrangement (IVA). The IVA is a formal debt solution which enables somebody with debt problems, and who meets the criteria, to repay a percentage of their debt over 5 years. At the end of the solution any debt which has not been repaid, along with interest and charges, will be legally written off.
This formal debt solution provides the legal protection from your creditors. The Government is not endorsing this solution or recommending it, however the Government has created the laws by which the solution is managed.
An IVA is not a debt solution to enter lightly, so comprehensive debt advice should be sought before proceeding with this solution. You can speak to our debt advice charity advisors on 0800 085 0226.
Trust Deed Scotland Government
The IVA debt solution is only available in England, Wales and Northern Ireland. In Scotland, the equivalent debt solution is a Trust Deed. The Scottish Trust Deed usually lasts for 3 years and is similar to the IVA. Any debt, interest and charges which have not been repaid at the end of the solution will be legally written off.
Once again, the Scottish Government is not backing this debt solution but the Trust Deed is governed under Scottish law, which helps guarantee that you will have legal protection from your creditors.
Bankruptcy is also a formal debt solution which offers the legal protection from creditors. There are positive and negatives of entering bankruptcy but the Government does not encourage people to enter this solution.
The legislation which is in place ensures that a person entering bankruptcy can eventually be discharged and debt free again. Please seek professional debt advice from a charity before proceeding with a bankruptcy debt solution.
Charity Advice on Government Debt Solutions
If you would like more information about debt solutions and whether the Government is backing them, please telephone Debt Support Trust. We are a registered debt advice charity helping people throughout the UK.
You can call Debt Support Trust free on 0800 085 0226. Alternatively, if you would like confidential online help please complete our debt analyser below.