Alternatives to Bankruptcy You Should Consider

It has been reiterated again and again that because declaring bankruptcy has significant and long-ranging effects. Even if you do not want to consider the possible alternatives by financial consultancies or banks, there are still many steps you can undertake first. We have compiled a list of questions you can ask yourself. If you answer yes to any of them, bankruptcy might not be the right choice just yet.

Is there any other way to pay bills this month? Taking on a second or third job isn’t a fun way to spend your evenings and weekends. But even if it’s just for a short period, the extra income could put a real dent in your debt.

Have you set a budget for yourself? Without good budgeting, it’s hard to see where or how you can make changes that will free up your money. Consider ways to cut housing and transportation costs.

Do you assess your situation as temporary? Realistically consider whether or not your financial problems are temporary. For instance, if you’ve lost your job, do you qualify for unemployment benefits? Can you easily get another job? If you’re currently having a financial problem, but you’ve historically paid your bills on time, consider waiting a few months to see if you can improve your situation.

Is there a possibility of term-negotiation with your lenders? Many lenders will lower interest rates or adjust your payment plan if you tell them you’re considering bankruptcy. If you have student loans, you may qualify for hardship programs, deferment or forbearance on your student loans. Some mortgage lenders offer loan modification programs. If your mortgage is modified sufficiently, you may avoid bankruptcy, which is beneficial for both you and the lender.

Have you tried Credit Counseling? Consumer credit counseling is one of your best bets. An exemplary counseling service will help you re-negotiate with your lenders, which can be stressful and ineffective if you don’t handle confrontation well. They’ll also help you create a realistic budget and debt pay-down plan and advise you on whether or not to pursue bankruptcy.

Be careful who you go with, though. There are a lot of predatory companies that will take your money without actually helping you. No legitimate agency will promise to wipe out your debts or get your debts forgiven for pennies on the dollar.

Only Advice You Need About Bankruptcy and Debt

The facts and legalese surrounding the phenomenon of bankruptcy are tricky. For nay lay-man, it is hard to understand without a financial advisor or a consultant present. The internet has a lot of guidance to offer, but with everyone peddling their services, you probably won’t get the piece of advice you are looking for. Without going into a lot of complicated details, we have compiled a brief piece of advice for you to understand and follow.

By now, you understand that declaring bankruptcy is a pretty extreme measure. Of course, if you use it in the right way at the right time, it can save you money. Not to mention, it can preserve your peace of mind, and get you back on your feet financially. But this is true for many other financial options as well such as the IVA or a Debt management plan.

There are also significant disadvantages to declaring bankruptcy, it can be expensive, time-consuming and has a huge impact on your credit score. Many financial gurus state that waiting to declare bankruptcy until you’re completely broke can work against you. Therefore, if you must, declare bankruptcy while you still have cash.

Being penniless will make the process that much harder. You have to factor in the cost of hiring a bankruptcy attorney, which can cost between $1,000 and $2,500. It can be a smart move to stop certain paying bills, like credit cards. Keep paying your mortgage or car loan, however, since you’ll have to make up those missed payments plus fees if you want to keep the car or home.

Once you declare bankruptcy, your creditors will be notified and will probably reduce your available credit or otherwise limit you from further credit card use. You’ll need to have cash on hand for living expenses after submitting your bankruptcy petition. If you use bankruptcy inappropriately, you could end up in a worse financial situation than if you had tried to solve your problems through less extreme measures.

Conclusion: Consider and pursue all bankruptcy alternatives like an IVA first. If you do decide to declare bankruptcy, the time it correctly to get the most debt wiped out.

Reasons to Declare Bankruptcy

It has been mentioned many times that bankruptcy is not a perfect solution. It is expensive, messy, and takes a heavy emotional toll on the whole family. One might think it is more prudent to accept the efforts to erase debt aren’t working and declare bankruptcy sooner. However, this may not the perfect pre-emptive step for every situation. In many cases, there are alternative ways to deal with financial instability. The financial instability in this situation means falling behind on unsecured debt or receiving unwanted collection calls. These situations may be stressful, but they certainly don’t warrant a bankruptcy.  Additionally, the process of bankruptcy doesn’t provide any reprieves for certain kinds of debt.

If you think have a valid reason to declare bankruptcy, think again. The reasons might turn out to be mere inconveniences rather than actual issues. Consult your debt management consultant before committing to it. Here are some instances in which declaring bankruptcy is a bad idea.

  1. If your reason is that you can’t make payments on small amounts of unsecured debt, then you should not declare bankruptcy. In the case of unsecured debts, there is no collateral to repossess. Short if actually suing you, these lenders can’t take any drastic steps. Even the litigation process will delay the payments for a few months. You can also renegotiate your interest rate or terms of payment.
  2. Another bad reason is that you just want to stop collection agents from calling you. This reason may sound legitimate to you. These calls are annoying and they cause disruption to your life. But there is an easier way to handle this. Send the credit company a certified letter requesting no more contact. The employees can’t contact you after that. Recording your calls and saving your voicemails is an effective way to prove collectors are continuing to call you even after you asked them to stop. You can then, take them to court.
  3. You can’t pay debts from recent income taxes, court judgments, child support, or student loans. These debts might not be erased even if you do declare bankruptcy. So, this option is not advantageous for you.

4. The absence of assets or an income outside of social security, unemployment, or welfare is also not a good reason to declare bankruptcy. You don’t have any assets that creditors can take. There is no need for bankruptcy in this case. The worst they can do is call you repeatedly.

Signs to Know When to Move Forward

Although bankruptcy either sounds like a dream come true on paper or a nightmare that ruins your life, the reality lies somewhere in between. Many experts also suggest that if your debt is spiraling out of control, don’t wait too long to declare it. Of course, there are a few other options that might be more viable. But there are a few “red flags” that can indicate your current financial situation is untenable. In these cases, bankruptcy may be the only way out.

Check these red flags below:

  1. You’re putting everyday necessities onto credit cards like groceries or gas. This is a cycle of repayments and getting more into debt by the day. Avoid it!
  2. Paying the bill of one credit card from another card or by taking a loan is nothing more than a stalling tactic. It increases your debt if done regularly.
  3. Missed payments and increased interest rates are also a huge red flag which you need to look out for. Credit card companies jack up the interest of payment defaulters by manifolds. Make sure you pay towards the principal and not the interest.
  4. A second or a third job is a red flag on its own. But even if working these extra hours isn’t helping, you may need to consider more extreme measures, such as bankruptcy.
  5. If you are considering withdrawing funds from your retirement accounts for debt repayment or you already have done so, then opt for bankruptcy. Withdrawing from retirement funds for financial stability is a foolhardy gesture. Don’t steal from your future self by doing so. Retirement funds are usually protected from bankruptcy, so avoid pulling any money out if you’re considering declaring it.

6. If the alternatives to bankruptcy don’t help in decreasing your debt. Then it is time to petition for bankruptcy. Make sure you have given your best efforts to make a sufficient dent in your debt. Refer to your debt management consultant at length before taking this step.

Reasons to Avoid Bankruptcy

On the internet as well as in real life, there is a horde of people looking around for advice about whether or not they should file for bankruptcy. It may sound extremely good on paper but not everything is song and roses when bankruptcy is concerned. Many experts, as well as people who have gone through a very messy bankruptcy almost always, talk people out of filing for bankruptcy. Although there might be a few scenarios where bankruptcy is the only option. However, it must be observed that bankruptcy doesn’t need to be the first option. There are many other ways to mitigate financial troubles.

Here are the reasons to avoid bankruptcy.

  • It will essentially like nuking your credit to infinity. There will be a long time before your credit score is recovered and it will be low for an even longer time. The bankruptcy usually stays on the credit report for a number of years depending on where you live.
  • You’ll be treated like an untouchable when it comes to getting a loan in the future. In case of loans, you’ll need to pay for everything on time and not slip up ONCE if you want to think about buying a house after bankruptcy.
  • Bankruptcy is a difficult process. It puts an emotional strain on your relationships. Getting sued, dealing with attorneys, and going to trial hearings are not a cakewalk in the slightest. It’s not the “start over fresh” feeling or a “Slice of life”. Bankruptcy is a hard process to go through.
  • Bankruptcy is Expensive. It isn’t for free and decent attorneys certainly aren’t cheap. If you don’t use an attorney, you leave yourself vulnerable to possible liability for debts you can’t pay. Remember, it can be expensive to go broke!
  • Bankruptcy is not the only option. Most people don’t need to file bankruptcy to get out of their financial mess. Get organized, take control of your life, and start systematically paying off debt. If you can overcome yourself and make wiser decisions, you can win with money and avoid bankruptcy.

For more financially sound advice, head on over to our blog!

Understanding Bankruptcy

What Is Bankruptcy?

According to Investopedia, Bankruptcy is simply defined as the “legal proceeding involving a person or business that is unable to repay outstanding debts.” Traditionally, this process begins with a petition filed. The petition may be filed by the debtor or by the creditors as a group. The second situation is less common. All of the debtor’s assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt.

What to Remember?

Bankruptcy can allow you a fresh start, but it will stay on your record for a number of years depending on the type of bankruptcy filed.

The court can declare you bankrupt by making a ‘bankruptcy order’ after it’s been presented with a ‘bankruptcy petition’. A petition may be presented by:

  • one or more creditors
  • the debtor
  • the supervisor of, or a person bound by, an individual voluntary agreement

Bankruptcy Costs

There are three fees you must pay when you take your petition and statement of affairs to the court:

  • A deposit of £525.00 to administer your bankruptcy.
  • A court fee of £144.00. Sometimes the court might not charge this amount.
  • A £7.00 fee due to a solicitor before whom you swear the contents of your statement of affairs.

Alternatives to Bankruptcy

There are many different alternatives to declaring bankruptcy. Take the advice of a credible debt management service before deciding on a course of action. There are various arrangements you can make with your creditors- for example:

Informal agreements essentially allow you to negotiate a repayment timetable with your creditors.

Individual voluntary arrangements (IVA) – an insolvency practitioner helps you negotiate repayment terms.

Debt relief orders if you cannot pay and don’t owe more than £20,000. This is only a possible insolvency process if you cannot pay the debts and who have no assets and a low income. Other conditions include having no other access to debt relief and no prospect of improvement.

Should You Opt for Bankruptcy? Salient Pros

Debt problems have multiple solutions. These different solutions are appropriate for various debtors on the basis of circumstances. If paying back a debt seems an insurmountable task, then you need to think about opting for a solution via bankruptcy. There are different ways a bankruptcy may be brought into effect. You can apply for bankruptcy yourself after assessing your circumstances. On the other hand, someone else you owe money to like a creditor or a bank can appeal via the court to make you bankrupt. The second situation happens with or without your consent or approval. However, this can only be done if you owe at least £5,000.

Bankruptcy is no laughing matter. It is a serious financial undertaking that can have grave consequences. One should also keep in mind that bankruptcy is not the only option by far. Additionally, it might not be the best one for you specifically. It is important that you know all the specifics of this option before committing to it.

The practical consequences of bankruptcy include:

  • Most of the debts are being written off
  • Assets are relinquished and disposed of by the bankruptcy trustee
  • Financial accounts will be frozen and controlled by the trustee
  • Accessing or acquiring credit will be difficult
  • Credit ratings are impacted for up to six years

But there are a few advantages of bankruptcy as well.

  1. Bankruptcy enables a debtor to write off most of their debts especially if the debt is more than the total amount of assets.
  2. Bankrupts can keep items which they need for their job. This can include a vehicle. Household items, money for basic necessities, pension money, or money belonging to a partner which held in a joint account is given back.
  3. It eliminates the stressful ambiguity of dealing with multiple creditors.
  4. Creditors might less money for their debts

Creditors are legally not allowed to change their minds

IVA or DMP? Which Solution is Best for You?

Financial markets are quite aware of these words. IVA and DMP are words that are used in many of the financial stability ads you see online and in real life. Common people are not aware of the meaning and significance behind these words. So it is advised that a financial expert should be present in case of formal proceedings of these plans. In short, these plans are a formal settlement among borrowers and creditors in order to facilitate repayment of loans at easy and acceptable terms.

IVA Functionality

The gist of IVA is that you, as a borrower, plead to get your loan terms relaxed or your loan amount reduced because you are unable to repay it. The odious situation can be caused by many external and internal factors. In short, an IVA is a last-ditch effort to repay arrear which is worth over 20 grand. The debtor agrees to pay the amount agreed upon by everyone. In return, the creditor calls off the debt recollection agencies and cease all activities that might stress you out. They also can’t pursue any legal action against you. So, it’s a win-win situation.

How to get an Individual Voluntary Arrangement (IVA)?

You can have access to a functioning IVA and all the information by the means of an insolvency practitioner. Don’t hide the financial details from your IP. Help them work out the best solution for you. Be sure to get quotes from a few organizations and pick the one most suitable for you. Only a few reliable debt management consultant like Solution2Debts will customize their plan to suit your needs, so pick wisely.

How Many Creditors Must Acquiesce?

Every successful IVA negotiation needs about ¾ or more than 70% of creditors to sign off on the agreed terms. If they are any less than this number, the negotiation could fall apart. Additionally, the creditors are not bound by law to agree to your proposed terms. They can say no or change the terms.  Put forward your best offer and meet them halfway. The IVA is for your benefit.

Is an IVA right for me?

Our expert debt advice can tell you if an IVA is suitable for you. Contact us here.

IVA and Me- A Journey to Debt Relief

Monetary security is an essential part of the millennial dream. The focus on financial stability is the one that guides all our decisions from kindergarten onward. Budgeting our pocket money, keeping a tab of expenses and savings are all skills that we learn on a preliminary scale earlier in life. The realities of life are relentless, however. There are many situations in life that get away from you in a number of ways. Debt is one of these problems. It gains momentum without notice and turns into a behemoth. The stress of a life in debt is incredibly debilitating. There is not much one can do to alleviate this situation without additional financial resources.

As a victim of bad financial decisions, I can tell you with absolute certainty that the worst part of being in debt is the calls. The calls from debt collectors, from banks, credit card companies, and service providers. All these calls are a herald of one bad news after the next. The anxiety you get is extremely harmful to your executive functioning. An even worse feeling is that you have no one in your corner. No one to help you settle the debt or to hold your hand as you navigate through life.

The situation is especially dire if you have to pick between IVA and bankruptcy. Here, professional advice is invaluable. I picked solution2debts for advice and consultation before making the big leap because of a recommendation from a friend. I was skeptical and rightly so. An IVA is a huge deal and putting your life in the hands of literal strangers was daunting. However, the process of getting a consultation and signing an IVA turned out to be the most freeing thing I did with my life.  My budget and expenses were allocated appropriately. My frivolous spending was curbed and I finally had a check-and-balance system which was missing.

The best part was the discontinuation of multiple calls from multiple creditors every day. I never realized how much of my energy was being drained by it until it stopped. The IVA providers took care of every last detail and in four short years, I was debt-free. It may sound like a fairy tale but it is my reality. Take the leap of faith and make it your reality as well!

Effectively Manage and Navigate your IVA Journey

There are many instructional articles and IVA supervisors online as well as offline telling you what not to do where an IVA is concerned. This advice may be helpful but it also discourages many people from considering IVA. If you have entered into an IVA and feel like you are compromising everything, then you need to shift your focus.

There are many articles on how to manage debt and your financial stability as well. But in this article, we will deal only with the IVA and how you can make the most of it while still journeying towards financial stability. Here are a few key facts to keep in mind.

  • Make the IVA payments that you agreed upon regularly.
  • Let the insolvency practitioner (IP) dealing with your IVA know about any changes to your circumstances.
  • An IVA is only available in England, Wales and Northern Ireland. If you live in Scotland you may be able to apply for a protected trust deed. Note the different risks, fees and conditions attaches with it before signing up.
  • Don’t miss a payment as may derail your entire IVA agreement. If you can’t make a payment, let your IVA supervisor know.
  • The important thing is living to your budget to make your IVA successful. Make a budget and stick to it.
  • Budget for one-off annual expenses, such as road tax or insurance on top of your regular monthly expenses.
  • Streamline your budget to include the one-off annual expenses aside. Apply this hack by organizing each item of your expenditure into these categories:
    • Regular payments (mortgage/rent, council tax, gas, electric, your IVA payment)
    • Everyday expenses (food, toiletries, petrol)
    • Expected one off costs/emergencies (repairs, clothes, MOT etc)
  • Keep on top of regular payments by scheduling them. In this way, you won’t be able to forget or miss deadlines. Check if you’re paying for services you don’t use.
  • Keeping a spending diary to track your expenses.

Still got questions? Chat with one of our IVA representatives or head over to our blog now!