
Introduction - with an Informal Arrangement, there is no need to got to court or employ the services of a Licensed Insolvency Practitioner. However it does involves the consent of all creditors to make it work in practice. If one or some of the creditors do not agree then it becomes less effective...
What is an Informal Arrangement? - An Informal Arrangement is one where a negotiated settlement for a reduced regular amount (or a lower lump sum) is agreed between the debtor and creditor. Typically, there may be more than one creditor and therefore the process involves to writing to each creditor in turn, to explain the financial circumstances and offer a new repayment plan based on lower sums. An individual may decide to offer different terms depending upon their circumstances. They may choose £X per calendar month for a period of Y (until full payment is complete), or alternatively a lump sum. If there is more than one creditor, any proposed reductions would normally be applied proportionally across the creditors by value. For instance, if an individual can realistically only afford to repay half all total debt:-
| Creditor | Amount Owed | % of Total Owed | 'Proposed' Reduced Amount | % of Total Owed |
| Creditor 1 | £5,000 | 48% | £2,500 | 48% |
| Creditor 2 | £3,000 | 29% | £1,500 | 29% |
| Creditor 3 | £2,500 | 24% | £1,125 | 24% |
| Total | £10,500 | 100% | £5,250 | 100% |
Advantages - they are as follows:-
- Cheap to implement as simply involves negotiating with creditors.
- No stress of appearing in court
- Credit Referring agencies like Experian are not normally notified
- It avoids a formal legal insolvency or bankruptcy procedure
Disadvantages - they are as follows:-
- Cheap to implement as simply involves negotiating with creditors.
- No stress of appearing in court
- Credit Referring agencies like Experian are not normally notified
- It avoids a formal legal insolvency or bankruptcy procedure
