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Posts Tagged ‘bankruptcy’

Twitter has taken over and I spend more time on twitter than I should.My poor little blog wishes I’ll pay more attention to her. Let’s address a real problem – BANKRUPTCY. I have written a lot of articles on this topic and will always do.

Administration orders is one alternative to bankruptcy and is a court-based procedure whereby you make regular payments to the court to pay towards what you owe your creditors. You need to have enough monthly or weekly income to meet the payments. If you cannot make the payments this order can be cancelled.

An informal arrangement is another option where you write to all your creditors and try to come to some kind of payment arrangement and this would usually include a timetable detailing when you can pay them. The only disadvantage to this is that it is not legally binding so it could be ignored by your creditors and then they could ask for full repayment of your debt.

The third option could be debt consolidation where you take a loan with a low interest rate say from a bank and this helps to pay many creditors and then you only have one monthly payment to make to pay off your bank loan.

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The thought of going bankrupt can be scary, but there are alternatives. The first alternative is to contact your creditors and try to reach an informal agreement. Explain to them that you are experiencing difficulty with their current repayment terms and try to negotiate a more suitable agreement. Most creditors would rather take this option and have you continuing to make repayments than risk you going bankrupt and having your debt written off.

If you are unable to reach an informal agreement then your second option is to opt for an IVA or Individual Voluntary Agreement. An IVA is a legally binding agreement between you and your creditors where you reach a compromise on how much of the debt you can repay and when payment should be made. An IVA is carried out in a much more formal manner than and informal agreement and if you decide to head down this route you have to involve a licensed Insolvency Practitioner to carry out the process.

Finally, if you want to avoid going through the process of an IVA you could enlist the help of a Debt Management Company. The company will provide you with your own debt manager who will prepare a financial statement and budget of your accounts and determine exactly how much you can afford to pay towards your debt. They will then approach your creditors on your behalf and agree a new set of payment terms. If you decide to use a Debt Management Company then read through their terms and conditions very carefully as some companies take a percentage of your monthly payments to cover their costs. To find one that charges no fees try contacting your local Citizens Advice Bureau.

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IVA or Bankruptcy?

Both of them are legitimate ways out of debt. Which is better? Well like most things it does depend on your individual circumstances. With bankruptcy your debt is written off, but there is a cost; with IVA only some of your debt is written off.

An IVA or Individual Voluntary Arrangement is where you set up an agreement with your creditors to pay off part of your debts. The amount you pay per month is based on what you can afford and it lasts about 5 years.. You can set up an IVA if you are at least £15,000 in debt and can afford at least £200 per month. Up to 75% of the debt can be written off.

For an IVA, your circumstances will be taken into account – like how much you earn, how stable your job is (is there such a thing as a stable job nowadays?) and how much you can afford per month. So this is not suitable for everyone as you need to have regular money coming in and you need to be able to afford the repayments each month for 5 years. If you fall behind with the payments, you risk being made bankrupt.

With an IVA, your debts need never be known to your friends, family, neighbours or work colleagues and as long as you can keep up the payments, you will have a clean slate within 5 years. An IVA is an arrangement between you and your creditors – no-one else need know, unless you tell them.

Many people regard bankruptcy as a “cop out”, because all your debts are written off and the bankruptcy may even be written off after a year, but this does come at a cost. The bankruptcy remains on your credit reference file for 6 years, so you will find it hard to get a mortgage or any form of credit. Your credit rating is damaged and this can last for many years to come.

With bankruptcy, you also have to declare your bankruptcy in the local newspaper, so all the busybodies in the neighbourhood will know about it – it will be great gossip-fodder for them. This is not very good if you are a private person who doesn’t like to share their financial distress with the rest of the world. You also will find many jobs closed to you – not just high powered jobs like Financial Director of a company, or Company Secretary, but also normal administrative jobs in the Financial Sector. You also can’t practise as a lawyer or chartered accountant..

Basic things like running a current banking account or having a credit card will be closed to you. You will only be able to hold a basic bank account with no direct debits or overdraft facility or even cheque book. So bankruptcy is a step not to be taken lightly as it impacts on so many areas of your life.

Creditors prefer IVA to bankruptcy, because they get at least some of the debt back. IVA is an alternative and should be considered provided you can meet the minimum monthly repayments.

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Bankruptcy is on the increase and set to rocket by the end of the year, as Britain locks horns with over £1.3 trillion worth of debt.

At present, over 26,500 people in the UK have declared bankruptcy or arranged an during April – June of this year. This is an increase of 4.2 per cent in comparison to the figures for the same period in 2007.

Uswitch have estimated that the number of people who take out an IVA between now and December 2008 will have soared to over 342,000.

Typical household debt in the UK is currently ascending by £13 per day with 12 people every hour entering bankruptcy or an IVA. This is largely due to variable rate mortgages increasing by over 65% in the past five years.

As consumers consistently borrow, more and more will be seeking debt help especially when the Bank of England base rate rises yet again before the end of the year.
Increasing household debt forcing people to look at their finances
The latest rate increases have caused over 7 million women to take a serious look at their finances. 23% of females are concerned by the amount of debt that they have accumulated but are making matters worse by shuffling credit to cope with accumulating interest..

On the other side of the coin, over 65% of women have either reduced the amount of debt that they owe or have not added to the amount outstanding.

Women prefer to borrow from safer lenders such as friends and family rather than a traditional loan or overdraft, which means that they have less interest to pay back. In contrast, the male pride will not allow guys to accept token gestures from their nearest and dearest and prefer the more conventional route of borrowing.

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