The Alternatives to Bankruptcy

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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.

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Debt Information: What is an IVA?

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Many people in the UK have debt problems. Some in the form of mortgages, others credit cards. Paying back the amount borrowed can be difficult if personal circumstances change, with interest added on, it can seem like there’s no way out.

During times like this, an IVA may seem like the solution to put things right or find a way to tackle the issues. An individual voluntary arrangement is a formal agreement which is binding upon the borrower and the creditor.  Governed by the Insolvency Act of 1986, the agreement allows the individual to pay back the money owed at an affordable cost. During this time, creditors will not be able to contact the individual who will be protected from any legal action or in some cases bankruptcy. Any interest which was set out in the original agreement will also be frozen.

In order to be eligible for IVA, the individual must have debts in excess of £12,500. This amount must be between two or more creditors. A regular household income must also be shown. Those who meet the criteria and are struggling to keep up with instalments to the creditor can apply for an IVA.

After the agreement is made, monthly payments will be calculated to be paid each month. An IVA is the amount of income minus necessary living costs. This allows the individual to pay back what they can afford rather than what is being demanded by the creditor.

There are many advantages to setting up this agreement, for example in most cases the individual can be debt free within 5 years with one single monthly payment.  Individuals have a legally binding contract which is a form of protection from court orders and also, as already mentioned, interest will be frozen. Telephone calls and payment demands also stop – for those struggling with the stress of debt this provides peace of mind that is priceless.

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