Alternatives to Bankruptcy | IVA | DMP

Bankruptcy, for the most part, is one of the most well-known kinds of financial legal processes and is an unconventional yet known debt management plan. However, it’s not the ideal option for everyone, especially since we all have different financial circumstances.

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You can declare yourself bankrupt if you’re experiencing extreme problems with your finances and don’t have enough money to pay off your debts. If this is what you’re experiencing, then filing for bankruptcy may be the best solution for you. But, what else can you do if your situation was different?

In the UK, you can file for bankruptcy, be in agreement with a creditor who can give you one large loan, or you can make use of alternative debt solutions. So here, we’ll discuss bankruptcy as well as the other alternative methods so you can choose the best option for you.

Table of Content

1 What is Bankruptcy?
2 What are the alternatives to bankruptcy?
3 Administration order
- 3.1 Bankruptcy vs Administration Orders
4 IVA
- 4.1 Bankruptcy vs IVA
5 Debt Consolidation
- 5.1 Bankruptcy vs Debt Consolidation
- 5.2 Debt Consolidation Loan
6 Debt Relief Order
7 Which alternative is best for me?
8 Pros and Cons of Declaring Bankruptcy
- 8.1 Pros
- 8.2 Cons
9 Why can alternatives to bankruptcy be unsatisfactory?
10 Summary
11 IVA Debt Help Information
12 Other Debt Solutions

What is Bankruptcy?

Bankruptcy is a legal process that’s considered one of the common debt management plans and one that can be initiated by an individual or initiated by a creditor who needs to repay someone within a set period of time.

Since the procedure must be carried out in court, the individual involved may face substantial financial and legal implications.

Anyone who owes more money than they can pay back can declare bankruptcy. So, if your debts exceed your income and assets and you don’t want to risk incurring interest, you may be able to file for bankruptcy. However, before you go about doing this, you should get advice from an IP so you know all there is to know about the payment processes and details.

What are the alternatives to bankruptcy?

When it comes to debt problems, we all need the proper debt help that suits our individual financial situations. That means finding the legally binding solutions that we can afford. Whether it’s having one that offers monthly repayments or one that stretches the payments out for a longer period. The usual alternatives to the bankruptcy debt solution are:

Administration Order
Debt Consolidations
Individual Voluntary Arrangements (IVA)
Debt Relief Order (DRO)
Others
Credit or Debt Counseling & Debt Management Plans
Debt Settlement
Liquidating Asset
Lifestyle Changes

Administration order

The Enforcement of Judgements Office (EJO) may issue an administration order if one creditor or several creditors has acquired a judgment against you or notice you have any debt issues.

Bankruptcy vs Administration Orders

With this debt management alternative, you’ll have to make regular payments to the EJO to pay off the total debt you owe your creditors. Your total outstanding debt must not exceed £5,000, and you must have a regular source of income to make weekly or monthly payments.

An administration order does not require payment of a fee, but the EJO will deduct a small percentage of your payment to cover its costs. If you don’t pay on time, your order may be cancelled, and you may face the same restrictions as someone who has declared bankruptcy. In the Uk, if your circumstances change and you are unable to pay as ordered, you may request a change of order from the EJO.

IVA

An IVA is a formal approach to pay off some or all of your total debts initiates individual voluntary arrangements. You’ll need the assistance of an Insolvency Practitioner (IP) or insolvency service since a report from an Insolvency Practitioner to the High Court is required. Your creditors will be bound by any agreement you strike with them.

Bankruptcy vs IVA

Bankruptcy proceedings normally take far less time than an Individual Voluntary Arrangement; you will usually be freed from bankruptcy after a year. An IVA usually lasts five years, but if you own a home and are unable to surrender your share of equity for the benefit of your creditors, the agreement might be extended for another year. In that case, you’ll need to come up with another course of action with your Insolvency Practitioner. Keep in mind though that having additional disposable income can help you pay off your IVA sooner.

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Debt Consolidation

You won’t have to file for bankruptcy if you consolidate your obligations, but keep in mind that you’ll still have to cover all of your bills over time. None of its wiped out. It’s just consolidated into one spot.

These loans can be quite beneficial when used as part of a larger debt management strategy aimed at reorganising and reevaluating your financial situation and improving your personal circumstances. When you’re already in debt, though, you should always seek financial guidance before taking out more loans.

Bankruptcy vs Debt Consolidation

If you have outstanding debts and owe significant quantities of money, debt consolidation loans is a smart alternative to filing bankruptcy. This debt solution is a form of loan where you’re given a new sum of money to pay off all of your debts.

This loan lets you to better manage your existing loans or unsecured debts by consolidating them into a single account. Instead of paying four or five separate creditors each month, you’ll only have one hefty loan to cover each month.

Debt Consolidation Loan

If you don’t have any income, debt consolidation loans won’t help you because missed payments will accrue interest. While some of these loans are unsecured debts, banks will almost always want some type of security before approving your application. Property or other valuable items, such as a car, are frequently required as security. In the worst-case situation, you could lose your house, your personal possessions, and other few assets you may have if you continue to miss payments.

Debt Relief Order

A DRO stays in effect for 12 months, during which time the creditors named in it are prohibited from taking any action to recover their funds unless the court grants permission.

You’ll be free of all debts listed in your DRO at the end of the 12-month period if your circumstances haven’t changed.

The courts are not involved in DROs. They’re created through a collaboration between the Insolvency Service and qualified debt counsellors known as authorised intermediaries, who will assist you in applying for a DRO with the Insolvencies Service.

Which alternative is best for me?

The best debt management plans for you will depend on your own personal financial picture.

If bankruptcy isn’t an option for you, the best option may be an administration order. But this only applies if you owe less than £5,000 in debt.

However, if you owe a greater sum of money to many creditors, a debt consolidation loan and debt management plan can help you get back on track without having to go through bankruptcy and all of the consequences that comes with it.

Lastly, an IVA may be your best option if you want to avoid bankruptcy while keeping your property and assets.

Pros and Cons of Declaring Bankruptcy

Pros

Bankruptcy only lasts a year.
People that you owe money to will no longer bother you.
The courts will protect you from your creditors.
Your major debts will be paid off, and you’ll be able to keep a large portion of your earnings.

Cons

To file for bankruptcy, you’ll need money to apply.
Debt repayments are income-dependent, not just wiped out, as many people believe.
Not all debts can be ignored or written off. Debts like student loans, welfare payments, etc. still need to be paid.
You might lose your home if you’re a homeowner. If you rent, your landlord may be entitled to evict you from your home.
Debts can be paid off by selling personal belongings and assets.
Your credit rating might experience significant setbacks.
Bankruptcy is public, and it can result in dismissal in many professions.
If you own a business, you may lose it.

Why can alternatives to bankruptcy be unsatisfactory?

Most alternatives to bankruptcy are difficult because they are voluntary: creditors who refuse to agree to a debtor’s discharge can usually thwart the debtor and her fellow creditors. As a result, the only final protection is contained in federal bankruptcy law.

Summary

Paying off debts can sometimes be difficult to keep up with, but with the help of experts, you’re sure to find a plan that you can afford. Bankruptcy is worth bearing, but if you want to cover all your debts another way, there are several alternative to bankruptcy that you can look into.

While filing for bankruptcy is an option, it’s worth remembering that bankruptcy isn’t the only debt management plan option accessible to people experiencing financial difficulties. Since bankruptcy will wipe out a large portion of your debt, many people file for bankruptcy without giving any thought to the alternatives. However, not all debts can be written off.

The most vital point to take away from our tutorial is that bankruptcy isn’t always the greatest solution to financial problems. There are alternatives to bankruptcy that are typically a better and less disruptive solution to your financial problems. So, speak with an expert today, discuss your issues, and let them help you discover the best solution for your unique situation.

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IVA Debt Help Information

If you want to know more about the debt help plan of an IVA we have all articles related to individual voluntary arrangements here: