Bankruptcy is a growing all the time in the UK. One of the reasons why bankruptcy levels are rising is that many people mistakenly believe that bankruptcy is an easy way out of insolvency and serious debts. There is also a lack of public awareness regarding bankruptcy alternatives, like the Individual Voluntary Arrangement (IVA).
Following the Enterprise Act of 2002, it is possible to be discharged from bankruptcy in less than 12 months, so to a lot of people, bankruptcy seems a soft option. But that is far from the case. In fact, bankruptcy is a situation that should be avoided wherever possible. For a start, there is the risk to assets that bankruptcy brings. On top of that, there are tough legal restrictions on business and financial activity.
For instance, during bankruptcy you cannot:
Obtain credit of £250 or more without disclosing you are bankrupt;
Act as a director of a company or start up, manage or promote a company without the consent of the court;
Start a business in a different name from the one that the bankruptcy was filed for unless you inform everyone you do business with.
Plus there is a stigma to going bankrupt and also public notices are placed in the press.
So it's clear bankruptcy is far from a soft option.
The IVA, on the other hand, is often a more suitable alternative for those with debts over £15,000 and a regular income.
An IVA works like this: first, an insolvency practitioner draws up a proposal and presents it to creditors at a special meeting.
If creditors representing 75% of the debt agree to the terms of the proposal, the IVA can go ahead. Depending on the terms of the agreement, an IVA can write off a large percentage of the debt. The rest is paid off in instalments over five years based on what the debtor can afford to pay. This way, someone with serious financial problems can be debt free in just five years.
What's more, an IVA ceases or prevents any legal action taken against you, and the negative aspects, risks and restrictions of bankruptcy are avoided, providing the agreement is adhered to.
So anyone staring personal bankruptcy in the face should consider all their options before making any declarations.
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For more information on bankruptcy, visit www.debtcounsellors.co.uk
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