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The Facts About Government Help With Debt

Many people assume that the government will have ways of helping people to get rid of debt, including government debt management plans, and to be fair this idea is encouraged by many websites. This site is aimed primarily at UK and US residents and there are some differences depending where you live, but in general it is safe to say that the government is not really interested in helping you to pay off your debts. There is one government backed option available in the UK, which I will look at first, before turning to the US situation.

Government Debt Management In The UK

In the UK the nearest thing to government debt management is a scheme that the government introduced in 1986 as part of the Insolvency Act. This piece of government legislation brought in a new alternative to bankruptcy, called an individual voluntary arrangement, or IVA. What this does is allow you to make payments towards your debts based on what you can actually afford, and at the end of an agreed period any debt that is left gets written off.

Government Debt Management - How An IVA Works

An IVA is a legally binding, formal agreement, unlike a normal debt management plan, which is informal and relatively easy to get out of. For this reason you should not contemplate it if you think that your circumstances might change soon. For example, if you were to inherit some money one year into your IVA, the IVA would still be in place and that money would be counted as income and used to pay your creditors.

One of the advantages of the legally binding nature of an IVA is that you just need the agreement of 75% of your creditors for the arrangement to be binding on the others too. This can be very useful if you have one or two difficult creditors who are not keen to participate.

An IVA is really only suitable for people in very serious debt situations, where the only real alternative would be bankruptcy. If creditors can see that not agreeing to an IVA may result in you filing for bankruptcy, they are likely to see the reduced amount they will get from an IVA as the least worst option.

Assuming your situation is suitable for an IVA, it can be an excellent solution to a seemingly insurmountable debt problem. You know you will be debt free within a fixed time period and you only have to pay what you can afford. For some people this can mean that at the end of the agreement as much as 70% of their debts could get written off.

Find out more about IVAs on the main IVA page of this website, which includes a list of Recommended IVA Providers.

The UK Alternative To An IVA

If your situation is not serious enough to set up an IVA, but you want a structured way to deal with your debt, then a debt management plan is probably the best option. You can find out more about how this works on the main Debt Management page of this website, where you can also find a list of recommended UK Debt Management Companies.

Government Debt Management - The US Situation

The IVA does not exist in the US and there is no direct, government endorsed equivalent. Many website will talk about government debt relief, grants and gifts, but you will not find any that actually give you specific examples, because there are none. There are some not for profit credit counselling organisations in the US, which the government at least acknowledge through the way the IRS classify these groups. But that is as close as the government get to having any direct support for debt help.

Misinformation About US Government Debt Management Help

You may have seen adverts and websites that promise information on US government debt help. The kind of things that other websites misleadingly refer to as government debt management and debt relief are just different types of grants. There are a host of different sorts of grants and scholarships available form many different federal, state and private organisations, but none of these are just gifts to pay off debt.

There may, for example, be grants available in certain parts of the US to help start up particular types of business. The angle these misleading websites use to describe these as government debt help is that you could use the money to create a business, make lots of money, then pay off your debts. It is all nonsense so my advice is to not waste further time looking for what does not exist.

The Real Solutions To Debt For US Residents

The absence of government debt management help does not mean that no help is available, it just means that it has been left to the free market. Hundreds of private companies help people out of debt every year in the US. The main mechanisms are either debt management plans (sometimes known as debt consolidation) and for more serious situations, debt settlement.

Debt settlement is probably the nearest equivalent to an IVA, in that the aim is to write off a large part of your debt. The main difference is that rather than doing this through a formal, government backed agreement, it is achieved by skilled negotiators dealing with your creditors on your behalf. As with an IVA, it can only work well if the circumstances are right, which means that you must have considerable debts to several different creditors and be struggling to repay them. The best companies will only take a proportion of what they manage to save you as their fee.

If your situation is not serious enough for debt settlement to be appropriate, then a debt management plan is almost certainly the best option. This will result in you having just a single affordable payment to make each month, and release you from the stress of being chased by creditors. To be eligible for a debt management plan you will normally need to have considerable debts to a few different creditors, and a regular source on income so that you can afford the monthly payment into the plan.

For further information refer to the main Debt Management page of this website, which includes a list of recommended US Debt Management Companies.

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