Last updated: 23/07/2020
There are many different circumstances that may lead to people finding themselves in financial difficulties. In some cases bankruptcy may be the best option for people to resolve their debt issues, however this is not always the case. There are quite a few different routes that you can go down that may be better suited to your needs than bankruptcy.
This guide will examine some of the alternative debt solutions that may be pursued in place of bankruptcy proceedings.
In This Guide:
- An administration order
- Debt consolidation loans
- Debt management plans
- Individual voluntary arrangements
An administration order
It may be the case that one of the creditors that you owe money to will be able to succeed in getting a county court to rule against you. If this happens, you may be in the position where you have an administration order declared against you.
If you want to be given this as an alternative to bankruptcy proceedings, you will need to get yourself an n92 form to fill out. It will ask you to give the courts information about all of the outstanding debts that you have against your name at present. In the event that your application for administration is accepted, you will need to pay the court monthly in order to allow them to redistribute that money to your lenders. You will only be able to enter administration if your total debts are less than £5,000. You will also have to provide proof that your income is fixed and steady enough to be able to meet the required payments on a regular basis. You should also be aware that while there are no official fees that you have to pay in order to go into administration, the courts will take 10% of your payments as a charge for arranging the setup.
Receiving an administration order from the courts will mean that you can no longer be charged interest or late payment fees by your lenders. Your creditors will also be unable to chase you for payment unless they first obtain permission from the presiding court.
Debt consolidation loans
If you firmly believe that the financial difficulties that you are currently having are only going to be for the short-term, you should probably consider using alternative debt solutions to bankruptcy. This is because bankruptcy will hugely damage your credit rating and will also mean that your assets and property may be sold off to cover repayments.
One potential route that you could go down would be to take out a debt consolidation loan. This form of loan is designed to help your debt issues by using one large loan to pay off multiple smaller ones. One of the attractive features of this type of debt solution is the fact that you may be able to arrange a new loan that requires smaller monthly repayments than your existing debts. This is because you will be able to shop around and compare the different loans out there that are available to you. One thing that it is worth bearing in mind is the fact that with a debt consolidation loan you will probably end up paying back more over the entire course of the debt.
Debt consolidation is one of the rare forms of debt solution that will not actually have a negative impact on your credit score, as long as you keep up with repayments on the new loan. However one thing to be aware of is the fact that if you have already fallen behind on payments on your existing debts, you will probably be offered debt consolidation loans with much higher rates of interest than you would be otherwise.
Debt management plans
A debt management plan could be a good debt solution for you, as long as you have a steady rate of income and a decent amount of disposable income. Debt management plans require you to have an extremely thorough look at your finances so that you can work out exactly how much disposable income you have that you can pay back your lenders with.
Once you have worked all of this out you then need to decide upon an offer that you can make to your creditors with a revised level of monthly repayments. You can either do this on your own or you can employ the help of a debt management agency. Debt management firms will work as a liaison between you and your creditors which can be helpful, but it is important to note that they will more often than not require a fee for their services.
Individual voluntary arrangements
If you are somebody who has been struggling to meet the repayments of your existing debts, you may want to consider setting up an IVA. IVAs are legal agreements between your lenders and you that can lower your monthly repayments and lengthen the term of your loan. If you wish to set up an individual voluntary arrangement, you will need to find yourself an insolvency practitioner to help organise it. Insolvency practitioners are generally accountants or lawyers that have taken special qualifications to allow them to deal with insolvency.
You must work closely with your insolvency practitioner in order to put together a proposal to take before your lenders and ask them to agree to. If you manage to get over three-quarters of your creditors to agree to the proposal, the remaining lenders will be compelled to abide by the terms and conditions of the arrangement.