As people age, they may face financial difficulties that make it challenging to pay off their debts. Fortunately, the UK government offers several programs to help seniors write off or lower their debts. These schemes can help ease the financial burden and provide peace of mind. In this article, we’ll specifically discuss the Individual Voluntary Arrangement (IVA) and Debt Relief Order (DRO) programs.
These programs are available as an alternative to bankruptcy for people needing to reduce or write off their debt. Each program has different qualifications and comes with its own set of pros and benefits and drawbacks.
Individual Voluntary Arrangement (IVA)
The Individual Voluntary Arrangement (IVA) is a government-backed program that allows you to make reduced payments towards your debts. This scheme is a legally binding agreement between you and your creditors. It means you only have to make one payment each month to your IVA provider, who then distributes the money to your creditors. The payments are based on what you can afford, and the agreement usually lasts for five years.
To be eligible for an IVA, you must have at least £6,000 in unsecured debts and owe money to two or more creditors. You also need to have a regular income and be able to afford the agreed-upon payment. Once the IVA is in place, your creditors can no longer take legal action against you or charge you additional interest or fees. At the end of the agreement, any remaining debt is written off.
As with any other type of financial agreement, an IVA will have advantages and disadvantages which should be carefully considered before making a decision. Among these are:
- Allows you to make reduced payments towards your debts, based on what you can afford
- Can help prevent legal action being taken against you by your creditors
- Once the IVA is in place, your creditors cannot charge you any further interest or fees
- Any remaining debt is written off at the end of the agreement
- Provides a fixed payment schedule for a set period, which can help with budgeting
- You need to owe at least £6,000 to be eligible for the program
- An IVA will be recorded on your credit file for six years, which can impact your ability to get credit in the future
- If you cannot keep up with the agreed-upon payments, the IVA may fail, and you could face legal action from your creditors
- An IVA can be a complicated and lengthy process
How To Apply for an Individual Voluntary Arrangement (IVA)
Now that you know a little more about IVAs, you might be wondering how the application process works. Before applying, read up on the details of the program so you understand as many of the details as possible. Once you’re ready to apply, you can follow the following steps:
- Contact an insolvency practitioner: You will need to find a licensed insolvency practitioner who can act as your IVA supervisor. The insolvency practitioner will assess your situation and advise you on whether an IVA is the right solution for you.
- Provide information: You will need to provide information about your debts, income, and expenses to the insolvency practitioner. This information will be used to prepare a proposal for your creditors.
- The proposal: The insolvency practitioner will prepare a proposal outlining your proposed payment plan and send it to your creditors for review. Your creditors will then vote on whether to accept the proposal.
- Creditor acceptance: For an IVA to be approved, 75% of your creditors (by value of debt) need to vote in favour of the proposal.
- IVA agreement: Once your proposal has been accepted, you will need to sign an IVA agreement. This agreement is a legally binding contract that outlines the terms and conditions of your IVA.
- Payment: You will then begin to make your monthly payments to your IVA supervisor, who will distribute the payments to your creditors.
It’s essential to seek professional advice before applying for an IVA. A licensed insolvency practitioner can help you understand the eligibility criteria and the application process. They can also help you prepare a proposal that is acceptable to your creditors.
Debt Relief Order (DRO)
The Debt Relief Order (DRO) is another government-backed program available in England, Wales, and Northern Ireland that can help seniors write off their debts. This scheme is suitable for those who have a low income, few assets, and owe less than £30,000 in unsecured debts. The DRO usually lasts for 12 months, and during that time, you do not have to make any payments towards your debts.
To be eligible for a DRO, you must have a disposable income of less than £75 per month, assets worth less than £1,000, and not own your own home. Once the DRO is in place, your creditors cannot take legal action against you or contact you for payment. At the end of the 12-month period, your debts are written off.
Just as with the IVA scheme, the Debt Relief Order program has its own set of pros and cons to be aware of as you consider your options.
- Suitable for those who have a low income, few assets, and owe less than £30,000 in unsecured debts
- Once the DRO is in place, your creditors cannot take legal action against you or contact you for payment
- Any remaining debt is written off at the end of the 12-month period
- Provides immediate relief from the financial burden of debt
- Only available to those who meet strict eligibility criteria
- If you acquire any new debts during the 12-month period, they will not be covered by the DRO
- A DRO will be recorded on your credit file for six years, which can impact your ability to get credit in the future
- You cannot apply for a DRO if you own your own home
How To Apply for a Debt Relief Order
If you understand the pros and cons of the Debt Relief Order scheme and think it might be the right solution for you, you can follow the following steps:
- Check your eligibility: The first step is to check whether you meet the eligibility criteria for a DRO. You must have a low income, minimal assets, and owe less than £30,000 in unsecured debts.
- Seek advice: It’s a good idea to seek advice from a debt advisor who can help you understand whether a DRO is the right solution for you. They can also help you fill out the application form.
- Complete the application form: If you are eligible for a DRO, you will need to complete an application form. The form asks for information about your debts, income, and expenses.
- Pay the application fee: There is a fee of £90 to apply for a DRO. If you are on certain benefits or have no disposable income, you may be able to get the fee waived.
- Submit the application: Once you have completed the application form and paid the fee, you will need to submit the application to the Insolvency Service. The Insolvency Service will review your application and may ask for additional information.
- Wait for a decision: The Insolvency Service will make a decision on your application within 10 working days. If your application is approved, your debts will be frozen for 12 months.
It’s essential to seek professional advice before applying for a DRO. A debt advisor can help you understand the eligibility criteria and the application process. They can also help you complete the application form and provide support throughout the process.
If you’re a senior citizen struggling with debt, there are government-backed schemes that can help. The IVA and DRO programs can provide relief from the financial burden of debt and help you get back on track. It’s essential to speak to a debt advisor to see if you’re eligible for these programs and which one is right for you.