What to do when you cannot pay off your debts

Taking a personal loan for buying a house or car, for taking a trip abroad or having a lavish wedding can seem an attractive option for financing your dreams. However, personal loans as well as payday loans or credit card loans have a tendency of piling up rather rapidly with increasing burden of interest rates. This happens especially in case of long term loans where you are not able to make the repayment of the loan as per the terms and conditions fixed with the creditor.

The follow up action of the creditors often results in harassing calls and a general disturbance of your daily life where you are left grappling with financial problems on one hand and relentless demands from the creditors on the other. In this scenario, where you know that you cannot pay off your debts, it is best to take the advise of a professional in the field who can guide you to an effective debt management solution. Two of the most popular debt management instruments are a Protected Trust Deed and an Individual Voluntary Arrangement. Here we aim to cover some of the basic features of these instruments to help you make an informed choice as to the option most suitable for you.

Protected Trust Deed

If you are a resident of Scotland and searching for a debt management solution, the option which will pop up first is that of a Protected Trust Deed or Scottish Trust Deed. This debt management solution is exclusively available only to Scotland and is quite popular because of its easy to understand terms and conditions which are beneficial for both debtor and creditors. At http://www.debtadvisoryscotland.net you can get detailed information on how to apply for a Protected Trust Deed and the various formalities associated with it.

To apply for a Protected Trust Deed, it is necessary to engage a licensed Insolvency Practitioner. Basically this instrument is in the form of a deed wherein the Insolvency Practitioner will estimate your monthly expenses, deduct them from your monthly income and earmark the remaining amount towards payment of debt to various creditors. The Insolvency Practitioner also deals directly with the creditors to persuade them to agree to payment of their debt through a Trust Deed. The creditors are generally given a time of 5 weeks to raise an objection. If all the creditors agree to the terms, the Trust Deed becomes a protected one.

Although entering into a Trust Deed means that you will literally have no savings since the entire amount that you are not utilizing towards your expenses will be given off to pay the debt, it also means that your debt burden will be steadily reduced. Moreover, the Trust Deed is valid for only a period of four years. Therefore, any debt amount which remains to be paid after expiry of the term of Trust Deed is automatically written off.

Individual Voluntary Arrangement

An Individual Voluntary Arrangement or IVA is a counterpart of Scottish Trust Deed which is available to residents of England, Wales and Northern Island. In essence it is the same as a Trust Deed. However, the eligibility criteria are slightly more relaxed and the debtor is given more freedom to decide the monthly instalment that he wishes to pay towards payment of his debts. To get complete information on eligibility and whether IVA is the best option for you, you must visit www.ivapros.co.uk.

An IVA works in much the same as a Protected Trust Deed. To apply for an IVA, you would have to approach a debt help company or an individual practising Insolvency Practitioner. Thereafter, an arrangement is created by the Insolvency Practitioner between the debtor and his creditors such that some part of debt is written off by the creditors, interest charges are frozen and a monthly instalment is decided for the remaining amount based on earning capacity of the debtor.

Before going in for either IVA or Scottish Trust Deed, you must keep in mind that these are often seen as the last resort options before bankruptcy. They also adversely affect the credit rating of the debtor for an extended period of time. For these reasons, you should always take the advise of an expert before choosing any debt management instrument.