Finding an Alternative to Bankruptcy
Bankruptcy can have serious, long term effects on your life. If
you become bankrupt, you may have to give up valuable
possessions and property. Your personal finances will have to be
investigated, and restrictions will be placed on future
investments.
If you have a steady income and a satisfactory credit rating,
you may want to consider these four options with less serious
consequences.
Loan consolidation with banks
You may be able to combine all of your debts into one
consolidated loan with either your bank or another financial
institution. A consolidation loan is always a good idea because
your interest rate will be lower than the interest rate on your
credit cards, and you will only have to make one payment on your
loan each month instead of making many different monthly
payments to each of your credit cards.
Informal arrangement with creditors
You could attempt an informal arrangement with your creditors to
pay a lesser amount or make your payments over a longer period
of time. Often this is done with the help of credit counseling
agencies. You may want to discover how your credit rating will
be affected before agreeing to such arrangements. Sometimes
creditors may agree to reduce your debt or extend the repayment
term, but still report you to the credit bureau.
Individual Voluntary Arrangement (IVA)
A third option is an Individual Voluntary Arrangement (IVA).
This is a legally binding arrangement between yourself and those
you are in debt to. It is Regulated by the Insolvency Act
(1986), so you will need the services of a licensed Insolvency
Practitioner (IP) to be eligible for an individual voluntary
arrangement.
During the set up of your individual voluntary arrangement, your
chosen Insolvency Practioner (IP) will draw up legal proposals
for you to make an offer in full and final settlement of your
debts this could be in the form of a lump sum or regular monthly
payments over a period of 5 years.
All interest and charges on your unsecured debts will be frozen.
You will be protected from any further action by your creditors.
Once the individual voluntary arrangement is successfully
completed your debts are effectively written off. The
arrangements should be made to the benefit of all those
concerned.
The main disadvantage to an IVA is that equity in property may
not be completely protected but this is no different from
bankruptcy where the Official Receiver retains the right to
force a sale up to three years after the bankruptcy.
Credit counseling
A fourth option is credit counseling. There are a number of
credit counseling services who will help you consolidate your
loans. Before enrolling with a credit counseling service, make
sure you inquire about their services and fees. Often credit
counseling services are useful in helping you to decide whether
bankruptcy is the right option for you.
There are many options to consider when you are in a situation
of financial difficulty. Consult with a trustee in bankruptcy, a
lawyer, or an accountant for more information.
These are just four options, but many more exist. Talk with a
professional before declaring bankruptcy to make sure you have
explored all your options.
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