Alternatives to Bankruptcy

Avoiding bankruptcy

It is important to know that bankruptcy is only one option, and that there are other alternatives to solving your debts. If you fear bankruptcy or are worried about going bankrupt against your wishes, read further to find out the implications and further information on what else you can do to solve your debts.

Individual Voluntary Arrangements (IVAs)

The most common alternative is an Individual Voluntary Arrangement (IVA), which was introduced in 1986 by the government. It is a legally binding agreement between you and your creditors where you are expected to pay what you can afford outside reasonable living costs. This arrangement normally lasts for about 5 years and is an alternative suited to people who have large debts and cannot afford their current monthly payments.

Debt management

Another alternative that may work better for some people is debt management. However, debt management is not suitable is you have serious debts and is better when they are yet to reach a serious level. This management usually involves a designated third party to assist you with paying back your debts.

Another alternative is an informal arrangement or a family arrangement. When you know you are unable to pay off your outstanding debts you can write to your creditors to see if you can reach some kind of compromise with them. In contacting them they should describe exactly how you are going to pay them back and when. The main disadvantage of this, however, is the fact that it is not legally binding, so your creditors can easily ignore it later and then ask you to pay the debts in full. To seek advice on this arrangement you should contact your Citizens Advice Bureau.

Alternatives to bankruptcy are also preferred by the people you owe money to especially if the alternative will pay back more money to them long term.

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An introduction to IVAs

The hardest part of realising that you are in debt and cannot go on in your current financial state is admitting that there is a problem. Individual Voluntary Arrangements (IVAs) are a potential solution.

Bankruptcy in the UK

To hear the words ‘bankruptcy’ in the UK a decade ago would be frowned upon by most. Being declared bankrupt was the very last resort and something of a rarity.

Living with bankruptcy

Bankruptcy is the legal status that a person or organisation enters into when it can no longer pay its debts and honour its obligations to its creditors.