By Louise Greenwood
BBC Radio 4's Money Box
Being threatened with bankruptcy can be very frightening
The number of people taking out Individual Voluntary Arrangements as an alternative to bankruptcy has risen fourfold since 1993 to 28,000 a year, but there are claims IVAs are being mis-sold.
IVAs allow debtors to make a deal with their creditors so they repay as much of their debt as they can, usually over a period of five years.
Debt counselling charities say the fees charged to set one up mean they are being sold to people who would actually be better off going bankrupt.
However, the law is changing to make it easier to get an IVA.
Nick Hood of insolvency practitioner Begbies Traynor explained how they work.
"What you will do is go to the creditors and say I can't pay you in full... I am prepared to put a percentage of my income... on the table... and maybe you will get 30, 40, 50% of your money back," he said.
To agree, the creditors must be persuaded that this is more profitable than making you bankrupt and you must appoint a licensed insolvency practitioner to act for you.
Jane from Dorset got into debt when she became a single parent and began using credit cards for daily expenses.
She took out an IVA because she believes it is a more honest way out of debt than bankruptcy.
"I do feel guilty," she told the programme, "but to go out and spend that amount of money and then make no attempt to pay it back is cheating as far as I am concerned."
But debt counselling groups are unhappy.
With insolvency practitioners charging anything from £1,500 to over £5,000 to set one up, Citizens Advice says IVAs are being sold inappropriately to people on very low incomes or even benefits, who
cannot meet the repayments.
Peter Tutton, Citizens Advice social policy officer said: "They've seen an advert, been encouraged into it because they have a debt problem.
It puts a such a strain on their budget that actually it collapses and their debt problem is worse
Petter Tutton, Citizens Advice
"They are told: this is what you'll have to pay, they make efforts to pay that, it puts a such a strain on their budget that actually it collapses and their debt problem is worse."
This is because if a person defaults, their creditors can still push for a bankruptcy order against them.
Despite this, IVAs are set to become even more popular when the government introduces a new "simplified" IVA late next year, where fewer creditors will be required to approve an application.
The idea is to encourage more people to settle their debts and avoid the stigma of a bankruptcy.
But Nick Hood warns that this new and potentially lucrative market could be exploited by parts of the debt management industry.
"There is a concern that this boom will pull in people who are looking at this as a profit-making enterprise," he said.
BBC Radio 4's Money Box was broadcast on Saturday, 15 April, 2006 at 1204 BST.
The programme was repeated on Sunday, 16 April, at 2030 BST.