How can I avoid bankruptcy?

2 November 2009

If it doesn`t look like you`ll ever be able to repay your debts in full, you may think that the best way to clear your debts is bankruptcy. In some cases, this may be true - but bankruptcy is by no means the only option for people with serious debt problems.

One alternative to bankruptcy is an IVA (Individual Voluntary Arrangement). Many people consider IVAs to be preferable to bankruptcy, although this isn`t the case for everyone.

What`s involved in an IVA?

An IVA is a formal and legally-binding arrangement with your unsecured lenders that may be available to you if you have no realistic way of repaying your debts within a reasonable period of time.

It involves repaying a set percentage of your unsecured debt (i.e. as much as you can afford) over time - usually in monthly payments over five years, although this can vary. On successful completion of your IVA, the remaining unsecured debt will be written off by your lenders and you will be legally debt-free.

IVAs have helped many people over the years, but they don`t come without their downsides. It is a significant commitment that will require you to pay as much as you can afford towards your debts each month; if your income increases while your IVA is in progress, you may be required to give up some of this to put towards your debts; and if you`re a homeowner, you may be expected to release some of the equity in your home in the final year of the IVA.

IVAs and bankruptcy will both have a significant impact on a borrower`s credit rating.

Why choose an IVA over bankruptcy?

For many, the main advantage of an IVA is that it is extremely unlikely to result in you losing your home. In bankruptcy, your home may have to be sold if you cannot find a friend or relative willing to buy out your `interest` in the property.

However, that does not mean bankruptcy isn`t the better option for some people. Bankruptcy proceedings are usually over within a year, as opposed to the typical IVA`s five years (although the bankrupt individual may have to make payments for three years). Bankruptcy may also be better for people who cannot commit to regular monthly payments - people who are unemployed or who have an erratic income, for example.

If you`re struggling with unmanageable debt and don`t know what to do call today on 0800 074 8639.

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