Bankruptcy is a debt solution but undoubtedly the last resort if you want to get out of debt. There are many reasons why you should try to avoid bankruptcy.
7+ Reasons to avoid bankruptcy:
In UK, when you are declared bankrupt:
- You will have to surrender all your possessions or assets to the court.
- Several restrictions will be imposed on you.
- Bankruptcy restricts you from getting a credit over £500.
- In case you are run a business, it will be closed down.
- You cannot be a part of any kind of promotion, formation or management of a limited company without the court’s permission.
- Your bankruptcy details will be flashed in the local press and the London Gazette for all to see.
- Your family life may be shattered
- More reasons…
7 ways to avoid bankruptcy:
Being in debt does not mean bankruptcy is the only option. On the contrary, you must try to avoid bankruptcy. There are different formal and informal ways to avoid bankruptcy in UK.
Informal ways to avoid bankruptcy in UK:
- Contact your creditors yourself: Initially you can negotiate your debt issues with your creditors to come to an agreement to avoid bankruptcy. The payment agreement with the creditors may include both payments from your direct (salary) and indirect income (inheritance or other sources). You must tell your creditors about your financial crisis and come to an agreement to write off your debts or reduce your payments and at the same time avoid bankruptcy being filed by them. You must win their trust that you want to pay off as much debt as you can.
- Debt consolidation: If you want to avoid bankruptcy, debt consolidation can serve your needs. You can apply for a debt consolidation loan where all your debts will be merged into one. Thus, you will be making one single monthly payment.
- Debt Management: If you cannot find a suitable lender to consolidate your debts, you can find a reputed debt management company licensed by consumer credit law in UK to avoid bankruptcy. The debt management company will deal with your creditors and regulate your repayments. Mostly these companies charge a fee for their services. For free debt advice, there are a number of organisations in UK such as The Insolvency Helpline.
Formal ways to avoid bankruptcy in UK:
- County Court Administration Order: If you have a debt amount of 5000 or less and at least two creditors and a court judgment against you by your creditors, Administration Order can be a solution to avoid bankruptcy. You make your payments to the court and the court in turn shares the money amongst your creditors on a pro-rata basis.
- Individual Voluntary Arrangements (IVA): Next type of formal arrangement to avoid bankruptcy is IVA or Individual Voluntary Agreement. Once your creditors agree to an IVA, they will no longer be able to take any action against you. An Insolvency Practitioner, licensed under the insolvency law, will be drafting your IVA proposal to repay your creditors. Unlike bankruptcy, IVA will allow you to repay according to your assets and your debts will remain a private affair as well.
- Trust Deeds: For Scottish residents, Trust Deeds can be a suitable alternative to avoid bankruptcy. It is more like an IVA but is applicable only in Scotland. A protected Trust Deed will save you from creditor harassments. In a Trust Deed your assets will be transferred to a trustee i.e. a qualified Insolvency Practitioner who will be dealing with your creditors. Trust Deeds are more flexible than bankruptcy and will allow you to regulate your finances as well.
- Debt Relief Order (DRO): Recently DRO or Debt Relief Order has become very popular. Though DRO has been introduced by The Tribunals, Courts and Enforcement Act of 2007 in April, 2009, yet it is devoid of court interference. This works like bankruptcy but makes you debt free within one year. DRO is a good option to avoid bankruptcy for those who have limited income and assets.
The above mentioned solutions are best options to avoid bankruptcy. But what if you are made bankrupt and then want to come out of it? We will discuss about them in the next article. (Please subscribe to our free email updates to get notified when the next article is published.)
