Alternatives to Bankruptcy

Bankruptcy is generally a last resort option and should not be entered into lightly. Depending on the financial situation, there may be alternative options to consider.

Individual Voluntary Arrangement (“IVA”)

An individual voluntary arrangement is a formal arrangement with those whom you owe money to.

IVA Advantages

·        Up to 75% of your debt can be written off

·        Often one single monthly payment

·        No creditors can take action once the IVA is approved

·        Assets can be excluded from the IVA

·        Perceived to be less stigma than bankruptcy

IVA Disadvantages

·        Generally available for those with debts over £15,000

·        No guarantee of approval of the IVA

·        Adverse credit score

·        IVA is entered onto a publicly available register.

Informal arrangements/negotiations with creditors

An offer to the people you owe money to on a pro rata basis

Advantages of Negotiations with Creditors

·        Bridge a gap and allows potential bankrupt individual to take control of their financial position

·        Possibly no professional costs

Disadvantages of Negotiations with Creditors

·        Difficult to get all those who you owe money to, to agree (one doesn’t and it’s a nonstarter)

·        Unwillingness to freeze interest

·        People who you owe money to are likely to insist on payment in full and regular updates

Debt Management Plan with Creditors

This is a single payment per month that is managed by a debt management company and distributed to your creditors equally on a pro rata basis

Advantages of Debt Management Plan with Creditors

·        One single monthly payment

·        Creditor action stops and freeze interest

·        Lower monthly payment than current payments

·        3rd party negotiates the payment on behalf of the debtor

Disadvantages of Debt Management Plan with Creditors

·        All people you owe money to must agree and if they don’t there is no legal protection from the creditor action

·        Those owed money may be unwilling to freeze interest charges

·        Those owed the money may require payment in full, there is no debt forgiveness (written off debt)

·        Those owed money can change the terms of the repayment plan

Debt Relief Order (“DRO”)

This is used when your debts are less than £20,000 and your assets are less than £1,000 *(these limits are to potentially increase soon)

Debt Relief Order Advantages

·        Your debts that remain unpaid are written off after 12 months

·        Application fee is cheaper than bankruptcy

·        No further action can be taken by people you owe money to.

Debt Relief Order Disadvantages

·        Debts cannot exceed £20,000

·        Not suitable if you own a house

·        Cannot obtain credit of more than £500 whilst in a DRO

Consolidation Loan

Consolidating all your debts into one monthly manageable payment

Advantages of Consolidation Loan

·        One single payment

·        New payment may be less than the combined current payment

·        Credit rating no affected

Disadvantages of Consolidation Loan

·        The repayment term is likely to be over a long period

·        There is no debt forgiveness

·        It may adversely affect your credit rating

Choosing the right path

There are various recovery solutions to consider, and our team of certified insolvency practitioners are here to help offer friendly advice to anyone who’s unsure about what path to take. We understand being in financial difficulty can be daunting, that’s why our team are happy to talk through your options and help find the most suitable recovery solution for your situation. Contact us today on 01482 427175 or email us at info@westgates.uk