Why Do Creditors Accept Debt Solutions?

 

Lenders know that most people want to repay their debts. Things change, so some people aren't able to pay. Lenders can make mistakes, like giving loans to people that cannot afford them. Good debt advice helps everyone when these things happen.

 

Many people worry that their creditors will reject their debt solution. Why would the lender accept a reduced payment? Why would they write some debt off?

 

Lenders know that they are taking a risk. They know some debt will not be repaid or will be repaid late.

 

The regulator (the FCA) has a major role. Lenders must treat their customers fairly if they get into money trouble. The regulator checks that this is happening.

 

The Role of Debt Advice

 

Debt advice balances the interests of customers and their creditors.

 

A customer sees their finances return under control. They have money for bills and other costs. Their adviser finds a fair level of debt repayment. They have a plan to clear the debts, so stress levels reduce.

 

Creditors can reduce their debt collection work. This saves them money. The debt adviser shows them the customer's money status. This means they understand what has happened. The creditor receives a regular payment, reducing the debt over time.

 

Debt Management Plans

 

Debt management plans are for people who want to pay their debts. They can afford to pay, but cannot pay the full amount due. They need extra time to pay back what they owe.

 

The DMP provider sends details to their customer’s creditors. This includes their income, their costs, and the other debts that they have. A repayment offer is made to each creditor. Lenders owed larger sums receive higher payment offers.

 

Creditors review these details. They check whether the offer is fair, based on the customer's status. They must be fair in the way they treat their customer. The creditor should accept a reasonable repayment offer.

 

Many creditors will freeze interest and charges. They want a solution that will clear the debt in the end. It doesn't help them to add interest that a customer can't afford to repay.

 

IVA

 

An IVA is a popular alternative to bankruptcy. Customers agree to make payment for an agreed period of time. Their creditors agree to write-off any debts that remain unpaid at the end.

 

Why would a lender agree to writing-off money owed to them? An IVA is used to deal with serious debt problems. The customer cannot repay the debt in a reasonable time period.

 

The lender could accept a small payment for a long time. This could be expensive for them in terms of admin costs.

 

An IVA helps all parties to end the matter in a fair time period. A customer wins if they stick to the payment plan. The lender gets paid part of the debt, with lower admin costs. The borrower and lender can move on.

 

The lender wins because their customer didn't go bankrupt. They will often receive a higher payment from an IVA.

 

Bankruptcy and Debt Relief Orders

 

You choose to become bankrupt or use a Debt Relief Order.

 

Your creditors cannot stop you. No need for creditor acceptance exists.

 

Summary

 

Creditors don't have to agree to debt management or an IVA. They look at each case on its merits.

 

It can be in their business interests to agree. They cut costs, get some payment, and treat their customer with fairness.

 

Thousands of people start new debt solutions each year. Good debt advice finds a balance that creditors accept. The borrower and creditor both benefit.

 

To get help with debts, please contact our advice team today.

 

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