Want to Avoid Bankruptcy? Consider an IVA

Bankruptcy

In the last three months of 2011, the Citizens Advice Bureau handled 8,518 new debt cases every day. A total of 1,896 people lost their jobs between November 2011 and February 2012. And during February 2012, £172 million was being paid out every day in interest payments on personal debts in Britain.

Little surprise then that according to recent figures, every working day in the UK, one person gets declared bankrupt or insolvent every 62 seconds.

Many households across the country are struggling to stretch their pay packets far enough, with more and more people having to cut costs in order to balance their income and expenditure. But what happens when you have made all the savings you can and there still isn’t enough money to go around?

When faced with mounting debts, the majority of people opt to hide and hope that in the end they will muddle through somehow. Rather than seeking help as soon as the problems start, borrowing more money to buy time is a common reaction. Unfortunately, this approach can mean that if the situation doesn’t quickly improve, you could find yourself facing even more severe problems.

For some people, this means bankruptcy proceedings but often bankruptcy is not the only possible solution and by considering other options, you may be able to keep your house and car, whilst clearing your debts.

An Individual Voluntary Arrangement is a legally binding contract which should never be entered into without serious consideration. But for some people, an IVA offers a very real alternative to bankruptcy and allows interest to be frozen and monthly commitments reduced.

The effects of bankruptcy

Bankruptcy is the most sensible course of action for some people, but the consequences can be far-reaching. If you have been declared bankrupt, not only is your credit file affected, you are also prevented from working as a chartered accountant or lawyer. If this is how you earn a living, this clearly would present a major problem.

Those declared bankrupt are also stripped of any assets, including property and any equity is shared out amongst creditors. This means you could lose your home, although those with children are usually allowed a period of up to one year to find alternative accommodation.

Whilst dealing with debt is never particularly pleasant, bankruptcy proceedings can be especially traumatic. Therefore, it is advisable to consider whether there are any alternative solutions which could clear your debts, in a less distressing manner.

The alternative

An IVA has no defined minimum level of debt but the general consensus is that if you owe at least £12,000, you will be eligible. The contract is legally binding and you will need the assistance of an insolvency practitioner (IP), who are qualified IVA experts, in order to proceed.

Creditors do not have to agree to an IVA, but if at least 75% of your debtors agree to the plan, the others are legally compelled to consent. The IP will ask your creditors to freeze all interest and charges and will negotiate a lower monthly payment, which you can afford. After around 5 years, the debt is automatically wiped off. During this period you can keep both your car and home, unlike in bankruptcy.

Debt is, unfortunately, a common problem in the UK but the good news is that if you are affected, bankruptcy doesn’t need to be your only way out. By speaking to an expert, you could find an alternative route to breaking clear of the cycle, without creating more problems in the long term.

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