In this debt-ridden society, many people are in severe financial difficulties. While bankruptcy is the last step in a long road of financial pressures for many, others opt for this solution too early, sometimes without considering suitable bankruptcy alternatives.

There are several options available for you if you are in debt and do not wish to declare bankruptcy. The most sought-after option is obtaining a debt-consolidation loan and closing all existing credit lines.
Debt consolidation is where you take a new unsecured loan and use the funds to pay off your outstanding debts.

An unsecured debt consolidation loan will help you consolidate all your unsecured debt and avoid bankruptcy. This new money can save you hundreds of dollars per month if you choose to use your loan to pay off existing debt – especially high rate credit cards. Even if you don’t own a home, you could qualify for their debt consolidation loan.

Debt consolidation loans are repayable over a longer term at a relatively low interest rate. This means that the monthly repayments are lower. If the loan is secured on your property then the interest rate and payments may be even lower.

But you must compare the pros and of debt consolidation loans before taking the plunge. There are two options for consolidating debts – either you borrow money to pay off all your debts or seek assistance from a debt consolidation service. The decision on which option will meet your needs has a lot to do with whether you can qualify for qualify for low mortgage rates on debt consolidation loans , and the total amount of debt you need to consolidate.
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Individual Voluntary Arrangement

The first thing to do when considering an Individual Voluntary Arrangement is to have a meeting with an Insolvency Practitioner. This meeting can either be face to face or over the telephone.

The meeting is to determine whether or not an IVA is a suitable option for resolving financial difficulties and to advice of what other options may be available.

If an IVA is the best solution, then the next step is for the Insolvency practitioner to gather information about the debtor’s financial details. This includes priority household payments, information about any assets the client may have and all creditor information such as creditor names and account numbers.

The Insolvency practitioner is under obligation to verify all information given by the client, therefore the IP will gather proof to support that the details are correct.

Once the information is verified, the IP will then begin to draft the proposals. The proposals are to be fair to the creditor and debtor alike. The idea is to show the maximum amount the debtor can afford to pay and to show the creditor this information in order to get the creditor to accept the amount that is being offered.

Once the proposals are drafted up, the debtor will look through the proposals, and if happy, sign them. An IVA is a legally binding agreement; therefore it is important that all information is correct before signing the proposals.

Once the proposals are signed by the debtor, they are then sent off to the creditors for their consideration. Creditors are generally given 2 to 3 weeks to vote on the proposals. Creditors can either decide to accept, reject or accept with modifications.

Once the 2 to 3 weeks is up, the Insolvency Practitioner will arrange a meeting between the creditors and debtor for the final vote on the proposals. The Insolvency Practitioner will act as Chairman to the meeting.

Creditors generally fax over their decision to the IP on the date of the meeting. So generally is not an actual face to face meeting, more a deadline to get all the votes in on one day.

In order for an IVA to be passed, 75% of the value of the debt must be accepted. In other words, as long as the creditors who represent 75% or more of the debt accept the proposals, then the IVA is accepted even if some creditors rejected the proposals.

If the IVA is accepted, then the Insolvency Practitioner will send out a chairman’s report to the creditors as well as the court detailing that the IVA was accepted.

Petitioning for Bankruptcy

Petitioning for bankruptcy could be as a daunting process, however, the procedure is probably not as bad as anticipated.

In order to petition for Bankruptcy, you will need to fill in a couple of forms. These forms can be obtained online from the Court website. The forms you will need are 6.27 and 6.28.

It is not always necessary to make an appointment to petition but it is always safer to call the court to see if it is permitted to arrive and petition or if an appointment is necessary.

Bankruptcy is normally held in the High Court in London. People will generally arrive first thing in the morning. Once at the court, the petitioner will go over to the first available desk clerk and inform them that they are there to make a petition. The clerk will look at the forms and then proceed to type up the bankruptcy order. The petitioner is then directed to where they need to go to pay the petition fee and return to clerk once they have done.

At this point, the clerk would generally give a time to return to collect a copy of the bankruptcy order.

Once the petitioner has their bankruptcy order, they will then be given directions to go to the Official Receivers office. When they arrive at the office, they will need to wait until their name is called. Once the name is called, a copy of the bankruptcy order will be taken and they will be given information regarding bankruptcy.

The petitioner will then be given a time and date of an appointment with the Official Receiver, sometimes this can be done on the day, but more often than not a telephone appointment will be given anywhere up to 2 weeks after the day of the petition.

Sometimes the petitioner will be required to return to the Official Receivers office for an appointment. Either way is possible so there is no need for concern if the petitioner is required to go back to the office rather than receiving a telephone call, it will basically be which way is more convenient.

Bankruptcy generally lasts 1 year; however, discharge from bankruptcy can be earlier or later depending on if there are any restrictions placed on the bankruptcy.

So there we have it. Although this is a very brief outline of what is likely to happen when choosing either option, it does give a general idea of what to expect.

The Bankruptcy Abuse and Consumer Protection Act was passed in early 2005 with the intention of reforming American bankruptcy law as we know it. The existing laws, according to Congress and the credit card companies, allowed too many debtors who might be capable of repaying at least some of their debts to have them wiped away by the courts. The new law was intended, rightly or wrongly, to eliminate the “bankruptcy of convenience” that allowed many consumers to run up huge debts without repaying them. Under the new law, filing is much more difficult, time consuming and expensive; so much so that it has discouraged many would-be filers from seeking debt relief through the courts.

Given that debt relief through the bankruptcy courts is now so much more difficult, it makes sense that consumers with mounting bills might want to seek alternatives. In order to do that, debtors need to find some other way to manage their increasing debt. Below are a few tips that might help consumers avoid filing for bankruptcy.

Negotiate with your creditors – It is generally a good idea to talk to your creditors as soon as you have a problem. If you are missing payments, call them and explain why. Creditors want to get paid, but they also understand that everyone has financial problems from time to time. They may be able to work out a repayment arrangement with you that you can afford. You will receive much more cooperation from your lenders if you are honest and explain your problem than to simply stop paying without explanation.

Seek credit counseling – Credit counseling sessions are mandatory for filing for bankruptcy, but many people with little or no formal financial training could benefit from meeting with a counselor and explaining their financial problems. The agency can offer help with money management and repayment plans. They may even be able to negotiate some better terms with your creditors if you haven’t already done so yourself. Many agencies are nonprofit, so you will generally find their services to be quite affordable.

Get a debt consolidation loan – A consolidation loan is one that combines several debts, often at high interest rates, into one loan at a lower rate. A home equity loan is ideal for this, and thanks to rising real estate prices, many people now have a reasonable amount of equity in their property. As a bonus, the interest on a home equity loan is tax deductible. Other credit cards with low-interest introductory rates are also good for consolidating debt.

Sell your house – If you do have a lot of equity in your property, it may become necessary to sell your house to pay your bills. This is a drastic step, as you will have to find another place to live, but if the alternative is losing your home to foreclosure, it may be the only sensible choice.

Bankruptcy shouldn’t be taken lightly. Having your debts removed by the courts will leave a mark on your credit report for up to ten years and will make it more difficult and expensive to borrow money or obtain credit in the future. Smart consumers know that avoiding bankruptcy, if at all possible, is a smart financial move.

What you are about to read may stop you making the biggest mistake of your financial life.

In today’s debt ridden society many people are in severe financial difficulties, often for reasons outside their control. Bankruptcy for many, is the last step in a long road of financial pressures but many opt for this solution too early and without considering suitable bankruptcy alternatives. Whilst bankruptcy may get rid of the immediate pressures it isn’t necessarily the end of the problems.

When you file for bankruptcy your life becomes an open book for the court appointed bankruptcy officials. They will pry into all aspects of your life and you will be required to provide all your financial information, including bank accounts, savings, investments and assets. Anything that can be sold or converted to cash, including your family home and any valuable contents, will be disposed of and you may still have part of your income deducted from your salary to pay some of your debts.

But there are bankruptcy alternatives that may be less painful for many. Here I’ve listed 5 bankruptcy alternatives

1. Negotiate with your creditors.

When you get into difficulties you should contact your creditors as soon as possible. Contacting them sends a signal that you want to repay them.

Lenders are anxious to get their money back and sometimes they will go to great lengths to help you. They may be prepared to re-finance your debt to have it paid over a longer period with lower installments.

They will often be prepared to reduce or freeze the interest rate and will even cut the balance owing up to 75%.

2. Refinance your mortgage.

If you have a property, which you own outright or on a mortgage, there is the real possibility of you being able to refinancing your debts using a secured mortgage or re mortgage.

Refinancing your debts involves taking out a new mortgage, or an additional mortgage. Some lenders will lend up to 125% of the property value allowing you to pay all your outstanding debt and may even have some spare cash to treat yourself.

As the new loan is repayable over a long period of time (often 25 – 35 years) the monthly repayments are significantly lower than with short term debt and should be far more manageable

3. Refinance your debts using a debt consolidation loan.

Debt consolidation is where you take a new unsecured loan and use the funds to pay off your outstanding debts. Debt consolidation loans are repayable over a longer term at a relatively low interest rate and as a result the monthly repayments are lower. If the loan is secured on your property then the interest rate and payments may be even lower.

4. Sell your home and downsize.

One of the easiest ways to get out of debt is to sell your house or apartment and downsize or move into rented accommodation. The surplus cash can then be used to pay your debts and you can continue with your life without the pressure.

Selling up and moving home is, however, a difficult and often painful option. If you do sell however. you can determine the price and remain in control. If the house falls into bankruptcy, you lose control and the house may be sold by
your mortgagor at auction for a price often considerably less than the price you can obtain in a normal sale.

5. A formal arrangement with your creditors.

A formal arrangement with your creditors can often be negotiated by specialist debt management companies and is filed with the courts. These arrangements are for 5 years. You pay an agreed amount each week or month to the debt management company and it is then divided between your creditors. While you continue to pay they are prevented from approaching you.

After the 5 year period is over any balance still owing is wiped out and you are free to live your life free of debt. If however you break the arrangement the normal result is bankruptcy.

As you can see, there are several sound bankruptcy alternatives for you to choose from. Everybody is under financial pressure from time to time, however you should not compound your problems by declaring bankruptcy too soon. Instead, choose the bankruptcy alternative that sounds the best for your particular situation and start working to repair your credit now.

Using a bankruptcy alternative means that in a few years you will have rebuilt your credit and will be back on track, whereas with bankruptcy it could be ten years before you can get back to normal.