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Formal and Informal Debts

A formal solution is a legally binding agreement between you and your creditors to pay back or discharge your debts over a period of time. A formal solution is granted under a ‘statutory’ scheme which means that it has set rules and requirements for how it operates, and it is managed by an Insolvency Practitioner.

Formal Debt solutions include:

  • IVA
  • Bankruptcy
  • Debt Relief Order
  • Protected Trust Deed (Scotland)
  • Sequestration (Scotland)
  • Debt Arrangement Scheme (Scotland)

An informal debt solution is an arrangement with your creditors where a monthly payment is made to each creditor on a pro-rata (proportional) basis until all debt is repaid. This is ‘informal’ because they do not have to agree to the arrangement. There is no formal legal agreement or court decision to make your creditors accept your offer. Informal debt solutions do not have to be managed by an Insolvency Practitioner, they are often arranged directly with creditors or through a debt management firm.