Alternatives to bankruptcy
There are a number of reasons why you may find yourself in debt. Whether it is as a result of losing your job, having to unexpectedly fund a major purchase, such as a new boiler, or poor money management skills in the past, the result can be very worrying.
When it comes to debt, one of the most important things is recognising that you have a problem. You may find that by sitting down and spending time planning your spending better that you can get on top of your debts. Alternatively, it may be that you need some help from others to get yourself back on track.
When seeking debt help advice, it is worth looking at the resources available from charities such as the National Debtline or the National Debt Foundation, as they provide a number of tools to help you assess and manage your finances.
One of the first things to do when you are trying to deal with your debts is to work out an accurate monthly budget. You should calculate your monthly income and essential outgoings, for example, mortgage or rent and see how much you have left to pay off your debts.
You will then need to identify your priority debts. These should include your mortgage or rent, utility supplies, council tax and any fines or benefits overpayments. Anything you have left over can be allocated to paying off any credit debts.
If you do not have enough money left after working out your budget to pay your debts, then you may need to seek some outside help to negotiate with your creditors. There are a number of different solutions that may be appropriate and that can help you avoid bankruptcy.
If you have a number of credit debts, then a Debt Management Plan is one possible solution. Under such a plan, you would make one monthly payment that would then be split between your creditors.
An Individual Voluntary Arrangement (IVA) is an alternative to bankruptcy. This is a legal agreement that is set up via the county court and under which you will pay an agreed amount of your debts over a period of time such as five years. Anything above the agreed amount is written off.
An IVA needs to be set up by a qualified Insolvency Practitioner, who will charge a fee. It can be a good alternative to bankruptcy for those with money or assets that can be used in part to pay off their debts.
If you have been taken to the county court in relation to your debts then you may be able to set up an Administration Order through the court. This will enable you to make one monthly payment to the court and the court will then share this amongst your creditors. To do this you need to owe less than £5,000.
If you do not have the means to pay your creditors, then a Debt Relief Order may be appropriate. An approved agency will need to help you apply and there are criteria that you must meet. This includes owing less than £15,000 and having less than £50 per month to pay towards your debts.
Bankruptcy, in most cases, should be the last resort, as there are potential consequences that include the possibility of losing your home and your credit rating. If you are concerned about your ability to meet your debts then you should take advice as soon as possible.