Overview of an Informal Arrangement

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%

Implementing an Informal Arrangement - most of debt management companies can arrange some kind of Informal Arrangement by assessing and individuals income and liabilities and than working out of the level of disposable income and amounts they can afford to repay to creditors. The use of a debtor company to implement an Informal Arrangement will mean what a fee added to the repayment profile in some shape or form. However, Informal Arrangements can be implemented by the individual themselves (without the use of a debt company). In certain circumstances, a negotiated settlement may be a more attractive option to a creditor then forcing a debtor into bankruptcy and receiving less of the debt. For example, mortgage lenders may be sympathetic if given early warning of financial difficulties. Where as the Inland Revenue or VAT man are less flexible than commercial creditors.. they may not accept an informal agreement on any other basis than the total being paid back in full and usually within a six month period.

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