If figures from the national money education charity, Credit Action, are to be believed the UK is rapidly sinking into a mire of personal debt. According to them the total level of personal indebtedness in Britain is rapidly approaching £1.5trillion (in July 2010 it stood at £1,456billion), or to put it another way, British individuals now owe more than the country as a whole produces in a year. Not only is our personal debt increasing, but more and more of us are struggling to meet the repayments on our loans and credit card debts, Citizens Advice sees 9,000 new free debt advice cases every single day.

Whilst bankruptcy may seem like an attractive option if you are one of those hit worst by circumstances outside of your control that have lead to joining the millions of people struggling with personal debt, it can be a bitter pill to swallow. For some it can lead to the loss of their home, loosing a much loved job, and long term issues with obtaining credit. But are there any alternatives?

Individual Voluntary Arrangements (IVAs): An IVA is a legally binding agreement between an individual debtor and their creditors. IVAs are governed by the Insolvency Act, and were designed for individual debtors with significant amounts of unsecured debt to be able to agree a formal arrangement with their creditors, to allow for them to pay reduced monthly repayments. Such payments are based on what the individual can afford, rather than the amount owed by them. In return all creditors will agree to cease all further legal action to recover the debt, as long as the terms of the arrangement are met by the debtor. Because an Individual Voluntary Arrangement is a legally binding agreement, it must be setup and administered by a licensed Insolvency Practitioner (IP). The IP must secure agreement from three quarters, in value, of the individuals creditors for the IVA to come into effect.

Individual Voluntary Arrangements are designed to cover a sixty month period, after which, as long as the debtor has complied with the terms of the arrangement i.e. they have made their payments as agreed, and cooperated with regular reviews of their circumstances, then any outstanding debt will be written off by their creditors.

The aim of an IVA is for the individual to repay what they can now afford, rather than what they were contractually obliged to pay under the original loan, credit card, and finance agreements they had. They are also not made public as bankruptcies are, and so afford some privacy, and do not require employers to be informed or place restrictions on company directors, or professional qualifications. However an Individual Voluntary Arrangement is only an option if you have at least £15,000 in unsecured debts, and after completion of the Individual Voluntary Arrangement it will show on your credit file for up to 6 years so you will probably struggle to obtain credit for up to 11 years from the date of taking the Individual Voluntary Arrangement out. As a legally binding agreement it is advisable to gather as much IVA information as possible and seek professional advice as early as you can, to asses if this is a suitable option for your circumstances.

Debt Relief Orders (DROs): Debt Relief Orders came into effect in 2009 as an alternative to Individual Voluntary Arrangement or bankruptcy for non homeowners with less than £300 in assets and a disposable income of less than £50 per month, and were designed to tackle relatively small amounts of debt that were non the less causing significant pressure because of low income levels and no assets.

Debt Management Plans (DMPs): Debt Management Plans are informal agreements between individuals and their creditors, with the view to reducing the amount paid by the debtor each month. By their nature Debt Management Plans can take many forms, but there are a number of specialist debt management companies and charities that specialise in helping individuals set up DMPs with their creditors.

Whilst an informal agreement to reduce the monthly amount you pay will help with short term income and expenditure each month, it may mean that the time to repay the debt is greatly increased, especially if interest charges and not stopped.

A debt management company will normally retain all or some of the first few payments as a setup charge for the DMP, as well as an ongoing charge each month. Though many people find this an acceptable consequence of not having to deal with their creditors themselves.