Bankruptcy

A legal process for individuals who are unable to pay their debts. All their assets pass to an official receiver for sale towards repaying their creditors. Once discharged, normally in 12 months, the person is relieved from paying the remaining debt.

Debt Management

A debt management programme is to manage someones debts without further borrowing which involves negotiating new terms such as lower payments and reduced or frozen interest/charges based on their ability to pay.

IVA – Individual Voluntary Agreement

A legally binding agreement between someone who owes money and their creditors. Designed by the government to help people get out of debt, an IVA can only be administered by an Insolvency Practitioner (IP). It is an alternative to bankruptcy, and normally only available to people with £15,000 or more of unsecured debt.

The person agrees to pay a certain amount for a fixed period of time (normally 5 years). Their creditors agree to write off any debt outstanding at the end of that period, and not to take any further action against them.

Debt

Debt is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned. Some companies and corporations use debt as a part of their overall corporate finance strategy.

A debt is created when a creditor agrees to lend a sum of assets to a debtor. In modern society, debt is usually granted with expected repayment; in many cases, plus interest. Historically, debt was responsible for the creation of indentured servants.