Bankruptcy is a huge step to take and even though it might look like the solution for writing of your debts It is a serious step and should only be considered after taking expert advice, this text from GTG Advocates is a comprehensive introduction. Alternatives to bankruptcy include the following.
Debt Management Plan (DMP)
You repay your debts in smaller monthly amounts based on what you can afford after essential living expenses are taken into account. The payment is made to a third party acting on your behalf, in monthly lump sum. It is then divided between your creditors proportionate to how much you owe each one. When you set up a DMP the third part will help you to put together and income and expenditure statement detailing how much you spend each month on mortgage/ rent, council tax, food, travel to work/school, utilities and deduct from that your income from all sources; what is left you pay to into your plan. Once a DMP is agreed, those frequent calls from creditors will cease and you will be able to enjoy some quality of life again, even though you will have to forget about that expensive holiday or new car for a while. You need to be aware that a DMP means that it will take you longer to clear your debts.
Individual Voluntary Agreement (IVA) (not Scotland)
An IVA could be seen as a more official and legally binding version of a DMP, arranged on your behalf by a qualified Insolvency Practitioner. Acting on your behalf, and after considering all your circumstances, the Insolvency Practitioner will arrange a meeting with your creditors where a proposal about repayment of your debts will be put forward. If it is accepted, you will be expected to pay your debts for 5 to 6 years, after which any balance will be written off. Unlike a DMP, interest and changes are frozen and your creditors cannot continue with any planned court action against you. It is essential you get expert advice before seeking and IVA as an IVA will not only affect your credit rating but may impact your employment. Whilst on an IVA you will be expected to adhere to your budget and any inheritance, bonuses or cash prizes will be taken into account.
Debt Relief Order (DRO) (not Scotland)
To apply for a DRO you must owe less than £15,000, have less than £3,000 in assets and have at least £50 a month available after essential living expenses. DROs are designed to allow you a breathing space of twelve months, as an alternative to bankruptcy. It costs £90 to apply for a DRO. If accepted your debts are frozen for twelve months, after which if your circumstances have not improved the debt is written off. You need expert advice to apply for a DRO.
