08. Dealing with many debts

If you have many different debts, there are several ways, using the courts, that you can sort things out yourself.

Administrative orders
If you have at least one High Court or County Court Judgment (CCJ) against you, and your total debts are no more than £5000, you can apply for an 'administration order' (AO). This allows the court to send payments to all your creditors. You make one monthly payment to the court and this is then split between all your creditors in a way the court decides.

Once this happens, a creditor can't take any action against you, and they will stop adding interest to your debt. The administration order can include:

• Council Tax;
• gas, electricity, phone and water bills; and
• fines.

These creditors may object to being included on the administration order, but the court will decide whether or not to include them.

Individual voluntary arrangement (IVA)
An IVA is a legally-binding arrangement between you and your creditors that is drawn up by a qualified insolvency practitioner (usually an accountant). You must agree to pay money, as a lump sum, instalments, or both. In return, your creditors may:

• write-off part of the debt; and
• not take court action against you or make you bankrupt.

You have to pay all the costs and fees and also a large amount of the debt, so it is realistic only if you have a fair amount of spare money or things you can sell to pay your debts.

If you are considering this option, you should shop around to compare the fees an insolvency practitioner would charge.

Bankruptcy
This releases you from your debts after two or three years. But your finances will be officially investigated, and you will have to make reasonable payments towards your debts for the first two or three years, if you can afford to do so.

Bankruptcy is not an easy option and you should also get expert advice before applying to make yourself bankrupt. It may not be suitable for people:

• with certain types of job (for example, if you work in finance, you are a solicitor, or self employed);
• if you own (or are buying) your own home; or
• if you have a lot of other assets.

And there are some types of debt you will still have to pay after bankruptcy:

• magistrates' fines;
• maintenance for a partner or children;
• debts from fraud; and
• some forms of student loans.

Finally, you must make a lump-sum payment (currently at least £250) to make yourself bankrupt (even if you are receiving benefits). This fee alone rules it out for many people.