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Other Debt Options

Key information

Bankruptcy

Before you make the decision to declare yourself bankrupt, there are a number of important considerations to take into account.

Debt management

Debt Management is an informal solution and allows you to consolidate all your unsecured debts into a single affordable monthly payment.

Debt Relief Order

A Debt Relief Order is a formal insolvency procedure specifically designed for individuals with low debt levels and low income.

 

Alternatives to an IVA

Click on the links below for more information

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Bankruptcy?

The decision to go bankrupt should never be taken likely. Whether you have decided that you have no alternative other than to petition for your bankruptcy or if one of your creditors has threatened to petition for your bankruptcy, there are important issues that you should understand before accepting that you have no alternatives: –

  • You and your finances will be subject to an examination by the Official Receiver
  • Loss of control over your significant assets. These can be taken into account during the bankruptcy proceedings
  • You will be unable to act as a company director
  • You cannot take any part in the promotion, formation or management of a limited company (LTD) without the permission of the court.
  • You cannot trade in any business under any other name than your own.
  • It is possible that you will be restricted from practising in any senior financial position such as a Charted Accountant / Lawyer.
  • You may not act as a Justice of the peace (JP).
  • You may not become an MP (member of parliament)
  • Your credit and thus the ability to obtain future credit will be affected for a significant period of time
  • You cannot obtain credit over £500 without approval.
  • You are allowed to open a bank account but there will be restrictions on its use

Obviously this can have a major impact on your lifestyle both in the short and longer term and as such your other options should be fully explored before you consider your final decision to go bankrupt.

As insolvency practitioners we have actual experience of acting as Trustees in Bankruptcy. Most bankruptcy advisers do not have this experience and so they are unlikely to be able to give you the practical advice that we are able to.

Advantages of bankruptcy

  • Provides immediate debt relief and no further legal action can be taken against you.
  • It allows you to make a fresh start after 12 months.
  • You will be able to keep your house if a third party can purchase your share of the equity.

Disadvantages of bankruptcy

  • There may be local publicity about your bankruptcy.
  • If you intend to make yourself bankrupt the court fee and deposit will cost £680.
  • You will have to pay your monthly surplus income (based on your trustee’s calculations, not your own) in to your bankruptcy for 3 years and no one can categorically say what you will pay until you are made bankrupt.
  • Your credit file will be seriously affected for 6 years and your past record can continue to affect you financially long after you have been discharged.
  • If you run a business in your own name it will almost certainly be closed down.
  • If your actions before bankruptcy are considered to have been reckless or irresponsible the restrictions of bankruptcy can be extended from between 2 to 15 additional years.
  • Transactions prior to bankruptcy that contravened insolvency law can be challenged or overturned and could result in money having to be paid back in to the bankruptcy by friends or relatives.
  • Bankruptcy can have serious implications for individuals with professional qualifications.
  • If you own a car worth more than £2,500 you may well be required to sell it and replace it with a cheaper model.

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Debt Management?

Debt Management Plans are tailor-made to each debtor’s individual financial circumstances. This means that your payment plan is based upon a calculation of your monthly income and outgoings; which guarantees a monthly payment that you can afford to pay. With a Debt Management Plan, you make a single, affordable monthly payment which is distributed between each of your creditors on your behalf.

In a debt management plan a lower, more manageable monthly payment plan can be arranged for each of your debts, and in many cases it can even be arranged to freeze or reduce interest payments on your accounts moving forward.

Is a Debt Management Plan right for me?

In many financial instances, debt management plans allow debtors to consolidate a number of unsecured debts into one manageable monthly payment. Debt consolidation can make it easier to pay all of your existing, unsecured debt within a reasonable amount of time.

But that doesn’t mean that debt management plans are right for everybody and it is important to ensure that a debt management plan is the right solution for you.

Advantages of a Debt Management Plan

  • More flexible than an IVA or bankruptcy.
  • Most creditors will initially agree to freeze some or all of the interest and charges.
  • Enables you to make 1 single payment to your creditors.
  • Suitable for short term financial difficulties.

Disadvantages of a Debt Management Plan

  • Does not prevent creditors from continuing debt collection procedures and quite often they will still apply for charges on the property (if applicable).
  • No guarantee that interest and charges will be frozen and there are generally specific creditors that will continue to apply this.
  • Fees charged by the debt management company will extend the length of time it will take to pay the debt off in full.
  • Continuing adverse impact on your credit rating.
  • No safeguards if the debt management company goes out of business.

Please note that Shawcross Williams do not offer or provide advice on Debt Management Plans.  Should a suitable insolvency solution not be applicable to your circumstances Shawcross Williams will refer you to a partner company to assist you further.

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Debt Relief Order

A debt relief order (DRO) is one way to deal with your debts if you don’t own your own home, don’t have much spare income, and your debts are £20,000 or less. Some types of debt don’t count towards this limit, so you must check whether you’re eligible before you decide.

Who is eligible for a DRO

You may be able to apply for a DRO if all of the following points apply to you: –

  • You are unable to pay your debts
  • Your unsecured debts total up to a maximum of £20,000
  • You have £50 or less left over each month after you’ve paid your usual household expenses
  • You don’t own your home
  • Other savings or assets, are worth less than £1000. Some assets are ignored when working out the value
  • You don’t own a car worth £1000 or more, unless it’s one that’s been specially adapted because you have a disability
  • You haven’t had a DRO in the last six years and aren’t going through another formal insolvency procedure, such as bankruptcy or an individual voluntary arrangement (IVA)
  • You have lived, had a property, or worked in England or Wales in the last three years.

Advantages of a DRO

  • An inexpensive procedure to wipe out your debts.
  • Normally the procedure only lasts 12 months.

Disadvantages of a DRO

  • Only applicable to individuals with debts less than £20,000.
  • Not applicable to homeowners.
  • Not applicable to individual’s with a monthly disposable income that exceeds £50.
  • You cannot own a car worth more than £1,000.
  • You cannot have money, investments or other assets worth more than £1000.
  • Your details will be entered on to a register that can be accessed via the internet.
  • Will not protect you from creditors who were not included on the original application.
  • Your actions before the debt relief order will be reviewed and sanctions can be brought against you if it is considered that you acted recklessly.

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