It seems that these days everyone is in debt. With credit readily available and interest rates at historic lows, people are digging themselves into a debt blackhole. Whether it be by credit cards, payday loans, store cards, overdrafts, graduate loans, business debts or personal loans, being in debt takes it toll mentally and financially and most people in this situation may consider filing for bankruptcy.
Whilst bankruptcy may be good in some situations as you can get a fresh start, it has severe repercussions. Some drawbacks of debt include you may need to give up assets including your home & car, your bank accounts will be frozen, income in excess of that needed for basic needs is paid to your lenders, you may have difficulty obtaining credit in the future and it can affect current and future employment.
With all the above disadvantages to filing for bankruptcy, it may be wise for most people in debt to take a different route. Here are some alternatives to bankruptcy:
Debt Management Plan
- Advantages: Have just one monthly payment as little as £75 for all your debts, Pay only what you can afford.
- Disadvantages:Your credit file may be affected for up to 6 years, Cannot help with secured or current household debt (gas, water, etc), Will last until debts are repaid in full, Not legally binding.
- Advantages: Replace multiple monthly payments with just one, Negotiate with your lenders for a full and final settlement.
- Disadvantages: Your credit file may be affected for up to 6 years, Not legally binding, You may have difficulty obtaining credit in the future, Cannot help with secured or current household debt (gas, water, etc)
Individual Voluntary Arrangement (IVA)
- Advantages: Write off up to 75% of your debt, Stops letters and collection calls, Consolidate all debts into 1 payment
- Disadvantages:Your details will be recorded on the insolvency register, Homeowners may need to release equity from their homes, Failure to comply with the IVA terms may lead to bankruptcy, Your credit file may be affected for up to 6 years
- Advantages: Release tax-free cash from your home to pay down your debt, Take the money in a lump sum or over several smaller payments
- Disadvantages: Must be 55 or older to qualify, You will be required to pay set up and/or arrangement fees, May be early repayment charges, Equity release is expensive, May hurt your ability to save enough money for retirement
Other options include: Administration Order, Protected Trust Deed, Debt Arrangement Scheme, Minimal Asset Process, Debt Relief Order, Sequestration