If you – like literally millions of other people today – find yourself in financial trouble, there are a number of options available to you. Amongst these options, if your debts really are insurmountable, is bankruptcy. And sometimes, declaring bankruptcy is the only realistic way out for people whose debts have reached truly hopeless levels.
But if you’re wondering “is bankruptcy right for me?” don’t be persuaded into declaring bankruptcy until you’re sure of all the facts. There are significant disadvantages to bankruptcy, which you must be fully aware of before you even consider it as a possibility.
The main alternatives to bankruptcy are Individual Voluntary Arrangements (IVAs), Debt Management Plans, Administration Orders, and Informal Arrangements.
An IVA is a formal and legally binding arrangement between a debtor and his or her creditors to pay back set amounts over a few years. These payments are usually monthly amounts that the debtor can afford, and once all the IVA payments are done the court legally protects you against any further creditor hassle. The costs of an IVA are lower than those for a bankruptcy and you should be able to keep all interests you have in property. There should be no fees to pay upfront and there are no statutory costs to pay. To look into the possibility of an IVA, you will need the services of a licensed Insolvency Practitioner. More information on this can be found in our earlier article Debt Information: What is an IVA?
Debt Management Plans are formal arrangements with creditors that are kept private – you don’t go on an official register. The most appealing thing about a debt management plan for many people is that someone else will talk to creditors on your behalf. Your representative will also negotiate one affordable monthly amount to your creditors. These payments will be based on your income, but none of your debts are actually written off. Instead, interest payments are stopped.
An Administration Order is an option if you owe less than £5,000 in total to two or more different creditors and have at least one County Court Judgment against you
Alternatively, you may be able to come to an “informal arrangement” with your creditors to repay what you owe – though it can be difficult to get everyone to agree to such an arrangement, so it’s best to seek expert advice from a reputable company.