DMP or self manage?

macoak

Hello,

Last year I was hit by a bad debt from a client to the tune of 40k which on top of other debt meant I had to liquiduidate my business. In total I have about £70k of debt spraed between the bank and credit card companies.

I have been speaking to various organisations about them managing my debt. Some say that they can, in time, get the debt reduced to something like 20 to 30% of the total. I lastly spoke with Payplan who say that is not true. Payplan say that with them I would more than likely have to pay at least 80 to 90% of the debt.

Anyone offer advice on this one?

Tixy

Hi

Are these personal debts rather than business debts? are you looking at an IVA? or is that what the companies you have been speaking to have been discussing?

I would start by seeking advice from the debt charities - who will give you impartial advice, not affected by what fees they can make from you - IMPORTANT - Where to seek professional impartial advice about your debts.

macoak

Hi

These debt are a mixture of business and personal but in effect all personal as I had personal guarantees on the business debt.

I will speak to a debt charity but at the end of the day I am just trying to estabilish whether I am going to have to pay 80/90% of the debt or perhaps 20/30% of it suggested by some organisations. The answer to this affects whether it would be worth declaring bankruptcy.

Tixy

Well its impossible to know. In a DMP you would usually pay the full balance of the debts.

In an IVA it isn't about paying back a set percentage its about paying back what you can afford and whether your creditors would accept your proposal. So the IP works with you on a monthly budget to calculate how much you can afford each month - this amount is then put as an IVA proposal to your creditors (its a pretty lean budget they have to work to, so you don't get to choose how much you offer, its all done based on basic living costs alone and everything else going to your debts).

At the start of the IVA nobody knows exactly what percentage you will pay back, as if your finances improve over the course of the IVA then your monthly repayments will also increase. Also if you have a property with equity in it, you are usually required to try to release that equity after 5years so that could bump up the overall amount you pay and therefore the overall percentage.

IVAs last 5years or 6years so as a rough starting guide you would compare the monthly repayment that the IP assesses you can afford, multiply by 5years and then compare that to your total debt balance (in reality of the overall amount you pay, a couple of thousand or so is fees so the actual percentage creditors receive would be slightly lower, but I'm assuming you mean the overall cost to you).

I don't have experience of IVAs personally but I believe it would be fairly unusual that creditors would agree to an IVA proposal whereby it appears from initial calcs that you will be paying back as little as 20% of your overall debts.

If any of the organisations has quoted 20-30% to you without taking details of your total amount of debts and your current income & expenditure statement then they would be talking hypothetically and not about your specific situation.

You might want to have a read of this - IVAs are they worth it?: Free guide to download and print

You mention you might also consider bankruptcy - well if your bankruptcy petition is accepted then its quite likely you would pay back less under bankruptcy than you would under an IVA (as a bankruptcy payment order only last 3years and they only take a percentage of your surplus income), although obviously again it would depends on whether you owned a property with equity in it or what other assets you own etc.