IVA's

When debts become overwhelming, it is common for thoughts of bankruptcy to be seen as the last resort. However, there is an alternative which is far less restrictive but can be just as beneficial for the debtor ... Individual Voluntary Arrangements.
Simply, an IVA is an arrangement between the debtor and his/her creditors to repay a percentage of the debt over the life of the IVA, usually 5 years. This is to be done under the watchful eye of an insolvency practitioner. At the end of the IVA any outstanding debt is usually written off.
 Who can make an Individual Voluntary Arrangement?

• Normally only a debtor can initiate an IVA, but if the debtor is an undischarged bankrupt the trustee, Official Receiver or even the bankruptcy courts can do so.
• When hearing a debtor's petition, the court is required to consider whether an IVA might be more appropriate than bankruptcy.

It should be borne in mind that IVAs, just like bankruptcy, are restrictive. It is not simply a matter of setting up an IVA, paying off a percentage of your debt and just walking away from the rest of what you owe. There are some impacts on your current and future finances which should be considered before making a decision.

Debt Management

Debt management can allow some borrowers to bring their expenditure and income back into line without taking on more borrowing. However, there are pitfalls to be aware of, and debt management is not right for everyone.

What is debt management?

A finance company or lender owed money can appeal to the county court to reclaim their money. However, if the borrower is in genuine difficulty the court can order repayments based on their ability to pay. This will list your debts in priority order, such as where failure to make payments would lead to the loss of your home (mortgage), an essential utility (electricity, water, etc), an essential item (such as a car you need to get to and from work) or could lead to imprisonment. The court will also take into account reasonable amounts for "essentials" for the borrower and his/her family. After all of these are taken into account, the court makes a repayment order based on the monies owed. The court will also freeze interest so that the money you owe does not increase.

Is there anything to watch out for?

Note that even if you organise a debt repayment programme, your credit reference file will still show details of the debt management plan, which could affect your ability to gain credit in the future. Remember that there is no guarantee your creditors will accept reduced repayments or freeze interest payments.

So who are they right for?

If your problem is temporary and your situation is likely to improve then a debt management plan could be the best solution. However, avoid them if your ability to pay debts will not improve in the next 12 months and/or if your debt will grow as a result of paying a commercial debt advice agency.

Bankruptcy

In the last few years there's been a noticeable trend in the rise of the number of young people declaring bankruptcy, with nearly 19% of individual bankrupts being under the age of 30.

What is it?

Bankruptcy is a court order that you can apply for if you're in debt. It may be the best way for you to free yourself from excessive debts that you simply cannot pay by sharing out any assets you have among your creditors.

Someone you owe money to could also make you bankrupt, even if you don't apply for it through your own choice.

Who would I need to tell?

• Your mortgage lender, if you have one, as they may repossess your house if you can't pay.
• Banks and building societies: when opening new accounts you must tell them you are bankrupt, just as you must inform your trustee of any money in the account that is above that needed for basic living expenses.
• Utilities companies (phone, electricity, gas): they often want a deposit in advance for their services.

 

Who is affected by bankruptcy?

Anyone can go bankrupt, including individual members of a business partnership. But remember, you don't have to become bankrupt just because you're in debt; there are other options available to you.

The proportion of younger bankrupts, aged between 18 and 29, has risen from just under 8% in 2001 to nearly 19% in 2005. In 2007, nearly 1,000 graduates in the UK were forced to declare themselves bankrupt.

For many it has become less of a stigma and increasingly a lifestyle choice in order to write off the debts they owe.

When can I be free from bankruptcy?

You are usually discharged from bankruptcy after twelve months, however if your bankruptcy order mentions a certificate of summary administration it could be two years.

If the court annuls the bankruptcy order because all debts have been paid or there was a mistake in making the order you will be freed from the order immediately.

If you have not carried out your duties under the bankruptcy proceedings, the Official Receiver may apply to the court for your discharge to be postponed.

You will not get an automatic discharge from bankruptcy if you have been an undischarged bankrupt at any time during the 15 years before the current bankruptcy. If this applies to you and you wish to obtain your discharge, you must ask the court five or more years after the date of your current bankruptcy order. Even then, the court may refuse or delay your discharge.