Debt Relief Options: Understanding Your Choices

Choosing how to handle overwhelming debt is one of the most critical decisions a business owner or individual can make. A quick search for “business debt help” often yields generic solutions that look like easy fixes but frequently lead to unintended negative consequences. Debt relief options like Company Voluntary Arrangements (CVAs), Individual Voluntary Arrangements (IVAs), Debt Relief Orders (DROs) and Debt Management Plans (DMPs) are well-known routes that are often marketed as simple solutions to complex problems. In reality, they are formal or semi-formal insolvency processes that can carry long-term financial, legal, and reputational consequences.

At Bell & Company, we take a different approach. We focus on pre-insolvency negotiation and alternative debt solutions. Our goal is to protect you, reduce risk and explore every viable option before formal insolvency becomes unavoidable.

Why We Avoid Traditional Insolvency Routes

Many traditional debt solution routes are classified as formal events of insolvency. For directors and business owners, this can have serious implications: it can instantly cause Personal Guarantees (PGs) on loans to come into effect, moving the debt from the company directly onto your personal shoulders.

Furthermore, solutions like Debt Relief Orders (DROs) and Debt Management Plans (DMPs) are typically designed for lower debt levels. In these instances, we believe in transparency; if a case will not commercially yield a result through our professional appointment, we refer clients to free debt charities rather than charging for unnecessary services.

Our role is to explore every viable alternative first, ensuring insolvency is a last resort, not the starting point.

Company Voluntary Arrangements (CVAs)

A Company Voluntary Arrangement is a legally binding agreement allowing a limited company to repay creditors over time. While often positioned as a rescue tool, CVAs come with substantial drawbacks:

• Supplier Fallout: A CVA can destroy supplier confidence, leading them to tighten credit terms or demand pro-forma payments, which can cripple your cash flow.
• High Failure Rates: These arrangements rely on immediate profit improvements; if revenue dips even slightly, the CVA can collapse into liquidation.
• The PG Trap: A CVA deals with company debt but provides zero protection for directors regarding personal guarantees, HMRC scrutiny, or wrongful trading risks.
• Growth Restrictions: Operating under a CVA makes it nearly impossible to secure new credit, leases, or trade accounts.

Individual Voluntary Arrangements (IVAs)

An IVA is a personal insolvency solution typically lasting five to six years. While often marketed as a way to “avoid bankruptcy”, an IVA is a restrictive, long-term commitment with significant strings attached.

• The 6-Year Sentence: Most IVAs last 5–6 years, during which you are tied to strict monthly payments.
• Your Home is at Risk: Many IVAs include an equity clause, forcing homeowners to remortgage or extend the arrangement to pay more into the pot.
• Loss of Financial Freedom: You must report income changes; furthermore, “windfalls” like inheritances or bonuses are typically seized by the IVA.
• Severe Credit Damage: An IVA is a public record that will make it extremely difficult to obtain a mortgage, car finance, or business funding.

When an IVA terminates, the fallout is swift and coordinated: the IVA Supervisor issues a Failure Report to you, your creditors, and the Insolvency Service simultaneously. The public Insolvency Register is immediately updated to confirm the failure, and you can expect creditors to resume chasing you for the full balance of the debt within 4 to 8 weeks. This transition can be particularly stressful as certain liabilities, such as council tax arrears, often involve more aggressive collection tactics that escalate rapidly once the formal protection of the IVA is gone.

Debt Relief Orders (DROs)

A Debt Relief Order is designed for individuals with low income, minimal assets, and debts under £50,000. While cheaper than bankruptcy, DROs remain a formal insolvency event with strict and inflexible rules:

• Public Record: Your name appears on the Individual Insolvency Register, which is accessible by the public.
• Employment Risk: Being insolvent can prevent you from working in certain sectors like finance or law.
• Director Bans: You are strictly forbidden from acting as a company director or forming a limited company without court permission.
• Rigid Rules: If your income rises or you receive a windfall of over £2,000, the DRO can be revoked, leaving you liable for the original debt plus interest.

Once revoked, all debts return, often with added interest and enforcement.