Is Bankruptcy the Right Option?
Avoiding the Stigma of Bankruptcy with Alternative Debt Solutions
Sep 12, 2008
If you asked a group of people to come up with a solution to a serious debt problem most would think of personal bankruptcy. Why is this the case? It is simply because most people aren't aware that there is any other way to deal with financial difficulties.
The Positives
- Declaring yourself bankrupt allows you to write off almost all debts, with the exception of taxation and student loans.
- The overwhelming majority of people will be released from their obligations after a period of 12 months, perhaps less.
The Negatives
- If you own a property you will almost certainly lose it.
- Your insolvency will be advertised in a local paper so it will become public knowledge.
- If you have accrued gambling debts or have gambling problem you could have a Bankruptcy Restriction Order (BRO) imposed upon you. This may mean you are not discharged for up to and including 15 years.
- You will not be able to work in certain professions, including the police force and government offices.
- You will not be permitted to be or remain as director of a company.
- Your personal finances will be heavily scrutinised.
The Alternatives
There are numerous alternatives to bankruptcy available. It is vital that you put together a complete breakdown of your incomes, expenditures and all your debts. This will help when you later consult a debt counsellor.
Individual Voluntary Arrangement
Recent legislative changes mean that it may be more appropriate for a person to commence an Individual Voluntary Arrangement. This has a number of advantages over bankruptcy, the main ones being you can keep your professional status and your home.
Debt Management Plan
Your debt problem may not be anywhere close to as serious as you think it is and it is not unknown for people to declare themselves bankrupt because they owe a few thousand pounds. In instances such as these a Debt Management Plan would be far more appropriate. You will be able to reach an agreement to pay your creditors as little as £100 per month.
Consolidation Loan
If you have equity in your property you may be able to get a consolidation loan. This will help bring all of your debts under one roof and potentially reduce monthly outgoings.
Full and Final Settlement
If you have spare cash or can borrow some from family, you may be able to reach a final settlement figure with your creditor. The reality is that all finance companies sell on debt for a fraction of the loan's value. Loans are regularly settled for as little as a third of the original amount.
Be Sure to Get Debt Counselling
Before you decide which debt solution you wish to proceed with, it is imperative that you consult a debt counsellor for independent advice. They may be aware of a potential pitfall that you haven't yet thought of - prevention is always better than the cure!
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