I Have Large Debts & Facing Bankruptcy – Is There An Alternative?
Surprising numbers of people in society are facing the prospect of financial bankruptcy, many of them are daunted by this & wish to avoid the negative effects of going bankrupt including but not limited to:
Credit Rating: Going bankrupt will likely affect your credit rating for a number of years, this will be to the detriment of anyone who will be looking to get a credit of any sort for a period of time.
Matter of Public Record
Bankruptcies are recorded on public registers’ and therefore any bankruptcy will be a matter of public notice, this for some people is something they wish to avoid amongst other issues relating to going bankrupt.
Issues with Bank Accounts
People that are bankrupt can often have issues getting a bank account, for more information about the implications of Bankruptcy see https://www.nidirect.gov.uk/articles/bankruptcy
So are there alternatives to Bankruptcy?
One alternative to Bankruptcy is what is known as an “Individual Voluntary Arrangement” (IVA).
What Is An IVA?
See this IVA Guide for more information on exactly “What Is An IVA?” but here we will give a brief overview.
An IVA is an arrangement between debtors & their creditors’ in relation to making debt repayments over a period of time to suit the person repaying the debts (usually a five year period).
IVA’s are good for all parties (both the creditors & the people owing the money) for the following reasons:
- The creditors “retain a customer” and recover debts where they wouldn’t if the individual were to go bankrupt.
- The individual with the debt avoids the negative effects of the bankruptcy filing, enabling them to rescue something from their existing credit history & with time improve their credit rating whilst still attending to their debts.
So IVA’s (Individual Voluntary Arrangements) can make sense for all parties involved, however, they do have some basic requirements.
1/ The individual must have a debt level of £12,500 or more.
2/ The individual must have 2 or more creditors.
Anyone within these criteria may be eligible for an IVA subject to certain other criteria.
Are there solutions for people with debts below £12,500?
Yes. People with lower debt levels and fewer creditors can explore the possibility of a debt management plan (DMP).
A debt management plan is an informal arrangement between someone in debt and their creditors to enable the person in debt to repay their debts over a period of time to suit them; this is a convenient way for the individual to repay their debts over a period of time to suit them.
Debt management plans are more commonplace than IVA’s & are designed for lower debt levels.
Differences Between IVA’s & DMP’s
Generally IVA’s have greater powers when it comes to writing off debts, with an IVA you can usually include income tax arrears, however, a DMP doesn’t generally include this type of debt (although council tax can be included in a debt management plan).
IVA’s (even though they have greater powers) are generally more intrusive to the client than debt management plans if the persons’ personal circumstances change whilst they are in the IVA they must declare this to the insolvency practitioner and this may result in the adjustment of the monthly debt repayment.