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Bankruptcy Declaring yourself bankrupt is one way of dealing with debts you can no longer manage. But it is not to be taken lightly. Bankruptcy is a serious matter that will affect the way you are dealt with by the financial services industry for many years after you've been discharged. Call us free on 0800 074 6918 to find out more. Bankruptcy Laws The bankruptcy laws changed in April 2004, making it easier for people to declare themselves bankrupt by reducing the time it takes to discharge bankruptcy from three years to one year or less. The change was intended to help business people get back on their feet again. For private individuals, the effects of personal bankruptcy can be far harder to deal with. Pros and cons of bankruptcy You don't have to become bankrupt just because you're struggling with debts. It should be the last resort. It could mean giving up most of your belongings, salary and any investment in your house to receivers - and the closure of your business. If you own any property or shares these may have to be sold to pay back the money you owe. This means your family home could be at risk if you go bankrupt. Even if it is jointly owned you may be forced to sell it so your share of the proceeds can be used to repay debts. However, under new rules, if the trustee appointed by the court has not sold (or sought an order for sale) the bankrupt's home within three years, it no longer counts as part of the estate and may not be claimed. But it doesn't end there. If you come into any money while the bankruptcy order is still in place, this could also be taken away - if you win the lottery, for example. You could also find yourself credit blacklisted for up to 15 years, under a draconian new bankruptcy restitution order. Bankruptcy is not for everyone Experts say that for someone with considerable debts, no income and no assets, bankruptcy is probably the best option. The people it has the most detrimental effect on are those with equity in property, disposable income and those with professional qualifications because they stand to lose the most. For example, solicitors should try to avoid it because they won't be able to practise law afterwards. Bankruptcy alternatives You could write to your creditors and make an informal arrangement to pay back your debts over a specific time agreed by them. The only disadvantage is that it won't be legally binding and your creditor might choose to ignore it later on.
It is an agreement between you and your creditors that you will repay a percentage of the debt over a set period of time, usually around five years. In many cases the sum paid overall will be less than the original debt. The advantage of this is you will have more control over your assets, have fewer restrictions and you won't be categorised as bankrupt for credit purposes. Debt Management Plans (DMP) are an alternative to bankruptcy Call us free on 0800 074 6918 to find out more. The purpose of Debt Management is to help you clear your debts at a reduced level over a fixed period of time to help you make a fresh start with your finances. Your property is not at risk, there are no legal set up costs, debt management plans are very flexible and the plan can be stopped at any time.
Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan. Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as security, most commonly a house. In this case, a mortgage is secured against the house. Using the security of a property allows a lower interest rate than without it, because by security, the asset owner agrees to allow the reposession of the property to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower. Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.
An IVA is a formal alternative for individuals wishing to avoid bankruptcy. The IVA was established by the Insolvency Act 1986 and constitutes a formal repayment proposal presented to a debtor's creditors via an Insolvency Practitioner. Usually (but not necessarily) the IVA compromises only the claims of unsecured creditors, leaving the rights of secured creditors largely unchanged. An IVA is a contractual arrangement with creditors and can be as flexible as an individual's own circumstances; they can therefore be based on capital, income, third party payments or a combination of these. Creditors take a decision at a creditors' meeting called to consider the IVA proposal. The return to creditors is often higher than they would receive in bankruptcy. A vote is taken - by value. More than 75% in value of those creditors who vote at the meeting by person or by proxy must agree in order for the arrangement to be approved. If any of those voting are 'associates' (usually business associates, friends and family) then a second count is taken and 50% of non-associated creditors must approve it. The Protected Trust Deed (PTD) is a formal arrangement that is used in Scotland where a consumer debtor grants a ‘deed’ in favour of the trustee which transfers their assets to the trustee for the benefit of creditors. Provided certain conditions are met, the Trust Deed may be registered as “protected”, thereby preventing creditors from petitioning for the debtor’s sequestration. The main advantage of entering into a trust deed are that it takes the pressure off as all correspondence and the Trustee will handle all of the communications from a persons creditors. An Administration Order is a single county court order that covers credit debts and certain other debts which are all treated together. It allows you to make a single payment every month into the court. The court staff will then divide the money amongst your creditors on a pro-rata basis. An Administration Order stops creditors from taking further action against you. PLEASE CALL 0800 074 6918 TO FIND OUT MORE |