The Alternative To Bankruptcy

The amount of money currently owed by people in the UK stands at ?1.43 trillion. This ?personal debt? is at an all-time high, and it's rising.

With the ?credit crunch? and its fallout affecting more and more people's lives, you may be feeling the pinch too. According to Credit Action, a national money education charity, 292 people will be declared insolvent ie unable to pay what they owe, every day in May 2008.

You may think you could be one of them.

But don?t worry. Help is at hand.

If you've got serious debt problems, you may have thought about declaring yourself bankrupt. But did you know there may be more appropriate alternatives. One of the most popular is an Individual Voluntary Arrangement (IVA), because it avoids you being labelled as a bankrupt, and you don?t have to lose your home, which is one of the things that can happen in Bankruptcy.

So what is an IVA?

An IVA is a legally binding contract between the debtor, ie you, and your creditors, ie those you owe money to.

On the plus side, this means that, instead of making payments each month to various creditors, you make one affordable payment, usually over 60 months, to what's known as a licensed Insolvency Practitioner, who arranges and manages IVAs. The moment the arrangement is in place, your creditors have to legally stop adding interest or charges to the money you already owe, and they must also stop demanding any money from you. Any debt that is still outstanding at the end of the IVA is written off by the creditors.

On the negative side, and just like Bankruptcy, an IVA will affect your Credit rating (ie your ability to get loans etc in the future) for up to six years.

So who can get an IVA?

Anyone who is struggling to pay back unsecured debts of ?15,000 or more should consider an IVA. An unsecured debt could be for a store card, bank loan, mobile phone bill, bank overdraft, utility bills (such as gas and electricity), or credit card bills. And if you're self-employed or run a business, Income Tax and VAT can be included in an IVA too.

Another benefit of an IVA is that it doesn?t matter if you own your own home or are a tenant. If you are a homeowner, the good news is that you can protect your home with an IVA, as your mortgage or loan repayment (and any arrears you're paying) is treated separately from your monthly IVA payment.

Please note, however, that you may have to remortgage your home towards the end of the IVA, releasing some of the money tied up in the house to give to creditors.

On a final note, while over the past few years the stigma of Bankruptcy has been reduced due to changes in the law, it is still seen as a harsher choice than an IVA. In addition, those taking the Bankruptcy route are prevented from taking up many professions, such as an accountant or a solicitor to name but a few and can not act as a director of a company. It really does make clear sense to consider an IVA over Bankruptcy, as it lets you avoid the restrictions that bankrupts face.

Whilst we make every effort to ensure this article is as up to date as possible, Accuma cannot be held responsible for changes in legislation or developments in case law since this article was produced and published. Article produced on 24th June 2008.

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True Facts About Debt Consolidation

There is a lot written about debt consolidation and though most of it can?t be labeled as false, truth is that it is not always true either. Debt Consolidation Agencies make many claims in order to attract customers, which is legitimate. However, since some of those claims are too close to what can be called ?false advertising?, it is best if customers know some facts beforehand.

Debt Consolidation can really solve debt problems provided that certain variables allow it. Not all debt can be consolidated and some debt, though it can actually be consolidated, is sometimes best to be left alone. Here are some true facts about the debt consolidation process.

Debt Reduction Is Not Always 65% Or More

It is true that some people can achieve a debt reduction of up to 65% or even more. However, those who can achieve such results are in terrible debt problems and have been already charged abusive punitive fees and exorbitant interest rates for their debt. The debt negotiators can reduce interest rates, and eliminate debt generated by missed payments and late payments in the form of fees and extra costs. That's the reason why someone in such situations can get a debt reduction of up to 65%.

In common situations a debt reduction can range between 15% to 40% and sometimes even less. Moreover, is certain situations, debt may even grow. This is due to the fact that sometimes the solution for debtors is not a debt reduction but a reduction of the amount of the monthly payments and this is done by spreading the debt over longer repayment programs thus generating more (but affordable) debt.

Your Credit Score May Suffer

Your credit score won?t be affected if the debt consolidation agency has agreements with creditors and they don?t inform that you've entered a debt consolidation program. Otherwise, your credit score will drop considerably. Nevertheless, within a short time and due to the results of debt negotiation your credit score will begin to rise consistently.

If your debt problems are solved by using a debt consolidation loan, your credit score will also drop. However, since your debt exposure will also drop, over the time your credit score will continually increase as long as the loan's monthly payments are always on time. That being said, debt consolidation almost always reduces your credit score for a short period of time till debt negotiations end and you start repaying your debt.

There Are Many Scams Out There

You need to be especially careful with unscrupulous companies that claim to be debt consolidation agencies and won?t do anything but take your money. If the agency states that they will make payments on your behalf, make sure to claim the receipts for those payments. Remember that missing payments and paying late will affect your credit score. Thus, these scams cannot only cost you money, but they can also destroy your credit score ruining your ability to get finance for many years.

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