How to avoid Bankruptcy when you are in UK?

During this time of economical crysis, you might have found yourself gathering more and more debts and slowly sinking into the imposibility of paying them off. Bankruptcy is always an extreme solution and it also may not be the best suited for you.

It will definitely be better if you went to consult with a professional financial advisor, in most cases and for most advisors the first consultance is free and you could find them at your Local Citizens Advice bureau. Your specialist will be able to analyze your situation and provide your with all your options and the best solution for your financial difficulties.

Before you consider bankruptcy, perhaps it would be better if you took a look at other, less restrictive solutions, namely filing for a Debt Relief Order or Individual Voluntary Agreement.

The Debt Relief Order

Debt Relief Order is a procedure less costly than going bankrupt. As first criteria to apply for that solution is to have debts of less than £15,000 and have a low monthly income. As with bankruptcy, a debt relief order normally last for a year and in that time you are protected by law from being taken action against you from your creditors. After that year had passed, you will be cleared from the debts listed in that DRO. There are a couple main conditions that will show you if you can qualify for a debt relief order: if you have savings of over £300 or you own valuable assets or own a vehicle worth more than £1,000.
First step you will have to undertake is find an authoriesed adviser who will verify your situation and if you meet the conditions and afterwards will apply for the order on your behalf. Obtaining the order will cost you £90, but you will be allowed to pay this in established instalments over the period of six months. This advisor will also present to you other options if there are more appropriate solutions for your situation.
Conditions for applying for a debt relief order:
1. The debts that qualify – they must be of a certain type, to be listed bellow - for a DRO coverage are of £15,000 or less.
2. Your available monthly income has to be of £50 or less after paying your normal household expenses.
3. Your assets plus any other savings have to be worth £300 or less, with the mention that, if you own a motor vehicle, it has to be worth £1,000 or less, unless it was specially modified due to the owner's possible physical disability.
4. Also, in the last three years you must have lived, owned property or worked in England or Wales.

Only particular types of debt can be included in a debt relief order:
1. Loans, bank overdrafts or credit cards.
2. Monthly rent, utilities, telephone bill, council taxes.
3. Aocial fund loans or benefit overpayments.
4. Conditional sale agreements or hire purchase – in this case you may have to return the goods purchased with these loans, unless someone else can pay the monthly instalments; you will not be able to continue paying for the goods once you have a DRO.
5. buy now and pay later agreements
As mentioned before, there are other types of debts that cannot be included in a debt relief order and you will have to deal with these separately and you will not benefit from the DRO protection against these particular creditor's claims. These include:
1. Confiscation orders or court fines, since they are related to criminal activity.
2. Child support and maintenance.
3. Student loans.
The Individual Voluntary Agreement
The IVA is a legally binding agreement between you and your creditors. This arrangement will span normally for 5 years and in this this period you will have agreed to pay what you can afford outside reasonable living costs. The IVA will have to be legally set up by an Insolvency Practioner (IP). The IVA will have to contain all your unsecured debts.
Why is this a better solution? An IVA settlement will give you affordable monthly payments over the afore-mentioned period of five years, while the interest on your loan will freeze as decided by law and the creditors will be forbidden to contact you directly, all being handled only through your selected Insolvency Practicioner.
Since payments will be based on what you are realistically able to afford, exact amounts will vary. The IVA settlement is suitable for your situation if your unsecured debts are at least somewhere in the lines of £12,000 -£20,000, your monthly payments are at least £150 and you must also have have a stable monthly income. There are multiple advantages for chosing an IVA.
1. The monthly payment will be affordable.
2. The interest payments are frozen by law.
3. You will be able to keep your house and your car (which mostly will not happen if ypu apply for bankruptcy), being protected from any legal action and your unsecured creditors will not be allowed to force you to sell it.
4. The overall debt amount will be reduced substantially.
5. You can clear all your debts in five years and, unlike with bankruptcy, where your status may be made public, no one outside the parties involved will be informed of your IVA settlement.
Certainly, there are a few drawbacks related to an IVA settlement:
1. You are not allowed to apply for other credits durind the period of you IVA.
2. The IVA settlement will affect your credit rationg for a period of a year after you have finished covering it.
3. It will require for you to be able to cover 75% of the value in order for your creditors to agree.
4. The IVA will bind you for a period of five years.
5. If you have equity in your home, you may be required to release it to your creditors, done usually by increasing the level of your mortgage towards the end of your settlement; if this is not possible, you might be required to extend your payments for up to another twelve months period.

Now, after viewing these options, you will be able to decide, together with your financial advisor, which of these solutions best suit your needs and what can make you surpass your financial difficulties.

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