There are a number of debt solutions available for you to choose from. You would usually choose the one that is most suitable or the one that you would prefer, however sometimes a mixture of these solutions may be required. I provide an overview of the main ones below.

Bankruptcy is the option that has the effect of clearing your debts, in the quickest time possible, through a legal process. Once a bankruptcy order has been made your assets will come under the control of the official receiver who will also investigate your affairs. Although it will clear your debt, with some exceptions, there are consequences to bear in mind.

There are many myths and misconceptions surrounding bankruptcy. Often you will hear people or debt organisations tell you to avoid it at all costs. The best advice that you can receive is to speak to an expert and weigh it up with all of the other solutions. For more information go to the personal bankruptcy page.

Individual voluntary arrangements. Also know as an IVA this debt solution has become extremely popular owing to the marketing efforts of debt advice organisations. If you complete your IVA then you will become debt free. It will typically last for five years during which time your creditors cannot take any legal action against you. In return you will be expected to contribute all of your disposable income, may have to give up some assets and release any equity in your property. An IVA is a serious solution and is often made out to be easy, which it is not. A failed IVA may result in bankruptcy. For more information go to the IVA page

Through a debt management plan an organisation will put forward a repayment plan to your creditors. The plan will usually request that you pay a reduced and affordable amount each month. The organisation negotiating on your behalf may also request that any interest on the debt is frozen. The objective is to bring your financial repayments back within your budget so that you can repay your debts and avoid bankruptcy.

A debt management plan is informal in nature, which means creditors do not have to accept the plan or freeze interest and it is probably not legally binding. For this reason you should only view a debt management plan as a short term solution. For more information go to the debt management plan page.

You may wish try and reach an Informal settlement of your debts. Each of your creditors will need to accept the settlement for you to become debt free. An informal settlement will stand the best chance of working if you have only a small number of creditors who understand your position and are willing to support you.

The idea of refinancing through unsecured credit is to reduce either the overall interest that you pay or to bring your monthly payments to an affordable amount. This form of debt restructuring is also known as loan consolidation. It is unlikely to offer large reductions in your monthly repayments and you will need to have a good credit rating.

Refinancing through secured credit aims to achieve the same objectives as above, however it has some distinct advantages and disadvantages in comparison.

A Debt relief order is a solution aimed at individuals with a small amount of debt, very little in the way of assets or income and would find it difficult to afford bankruptcy. The effects and consequences of the order are similar to bankruptcy.

If you have debts less than £5000 then you may be able to apply for an administration order. Such an order is granted by the court. You will need to apply and if the order is made you will make reduced monthly payments to the court who will then pay your creditors. It may also be possible for your to obtain a composition order where the court will limit the duration of the administration order and write off any balance remaining when it ends.

Although not a debt solution you do have the option of doing nothing. This should never be done without expert advice. Debt problems can quickly spiral into more serious problems if you do not take action. You can also take a holding position. This would usually involve paying the creditors a nominal amount, for example £1 a month. Again this should never be done without professional advice.

Further reading – The Insolvency Service publication alternatives to bankruptcy.