Get a helping help by understanding the alternatives to Bankruptcy
Before making the decision to go bankrupt, it is crucial to review the alternative debt solutions available. Any one of these can assist you in managing your financial circumstances. However, whether they would be the best option for you depends on your financial circumstances.
We'll examine these alternatives to bankruptcy and highlight the advantages and disadvantages of each to help you choose the solution most suited to you.
Alternatives to Bankruptcy: Your Options
The main alternatives to going bankrupt are explained below. However, reading this information is not enough. Before making your decision, it is crucial that you speak to us. Every person’s financial situation is complex and unique. To really understand which solution is the best fit for you, there is no substitute for a personal consultation.
We will review your situation and goals. We will help you understand the implications of each of the alternatives and how they will affect you. Then we will recommend the best solution to resolve your particular situation.
Debt Management Plan (DMP)
A Debt Management Plan (or DMP) involves agreeing reduce payments with each of your creditors to fit within an affordable monthly amount. This allows you to regain control of your debts, pay back what you can afford each month and stop the constant repayment demands.
You can negotiate the reduced payments yourself. However, it is often easier to use a debt management firm to help. If implemented correctly, as well as agreeing to reduce payments, your creditors will often reduce their interest charges or freeze them altogether.
One of the main disadvantages of a DMP is that it can take a long time to repay the debt you owe. In addition, some debts can’t be included – for example money owed to HMRC. For this reason DMPs are normally suited to people who have lower amounts of debts or just need a short term breathing space from their debts.
Individual Voluntary Arrangement (IVA)
An IVA (Individual Voluntary Arrangement) is a legally binding agreement between you and your debts. The Arrangement involves repaying what you can over a fixed period – normally 5-6 years. At the end of this time, any remaining debt is written off.
Most types of debt can be added to an IVA including tax arrears owed to HMRC, utility arrears and CCJs. The solution can work well if you are unable to repay the debt you owe in a sensible period of time using a Debt Management Plan.
One of the main reasons you might use an IVA rather than going bankrupt is if you are a homeowner. An IVA protects your property from your creditors and you are not forced to sell. However, you may be required to release equity to improve the amount you repay overall.
Generally speaking, you should only start an IVA if you have a sustainable income. It is also important to understand that your monthly IVA payments will not be fixed. They can and will increase during the Arrangement if your financial circumstances improve.
Once you have started an IVA you are legally allowed to cancel it and go bankrupt at any time. We can offer guidance through this process to make it as smooth as possible.
Debt Relief Order (DRO)
A Debt Relief Order gives a very similar outcome to bankruptcy. The solution lasts 1 year after which time your debt is written off.
One of the main advantages of a DRO over bankruptcy is that it is 100% free to implement.
However, in order to qualify, you need to meet some strict criteria:
- You can’t be a home owner
- Your debt must be less than £50,000 in total
- Your car must be worth £4000 or less
- Your monthly disposable income must be no higher than £75
Debt Consolidation
Debt consolidation involves repaying several debts using – most commonly - a loan.
The benefits of consolidation are normally that your overall monthly debt repayment is lower and more affordable. In addition, the interest paid on the overall loan is lower than would otherwise have been the case meaning your total debt is repaid faster.
However, a significant downside of this solution is that you must be able to borrow an amount sufficiently large to consolidate all of your debt. This may not always be possible, particularly if your credit rating is already poor.
In addition, you are likely to be left with a sizeable monthly repayment amount. This must be affordable. If you don’t have sufficient surplus income to cover the payments, you will need to supplement your income by continuing to use other forms of credit (often credit cards). Your financial problem will then continue to get worse not better.
What you need to consider when choosing between the alternatives to bankruptcy
When it comes to researching and choosing an alternative to bankruptcy that is best for you, there are different factors that will have an impact on your decision.
- How much you owe: The best course of action will depend on how much debt you have and to whom you owe the money.
- Your income: Debt solutions such as a DMP and IVA rely on your ability to maintain reasonable monthly payments from your income. As such, your capacity to afford such payments will determine how suitable these options are for you.
- Your assets: The value of your financial interest in some of your key assets – particularly your property and car – will determine whether any of the alternatives to bankruptcy are better for you.
- Your credit rating: Your ability to get credit cards and loans may be impacted by your credit score. In turn this will impact whether the option of consolidation could work for you.
- Your long-range financial objectives: Your long-term financial goals and how each debt solution might affect them can have an impact on the one you decide to go for.
Call us today. We can assess all of these factors for you and ensure that your decision is best for your circumstances:
The world of debt relief options can feel like a never-ending battle, but we’re here to help. We help break everything down and allow you to understand the intricacies of bankruptcy and other potential routes. You will understand where you are and what to do at every stage, thanks to our years of experience.
Contact Us Today For More Help On the Alternatives to Bankruptcy
Seeking professional advice and guidance is essential before making any decisions about which debt solution to use. If you make the wrong choice, you could find yourself in a worse financial position.
Here at Bankruptcy Guide, we can evaluate your financial condition, outline your choices, and help you throughout the procedure.
By becoming aware of the alternatives to bankruptcy and consulting a professional, you can take charge of your financial future and finally get on the path to becoming debt-free.