Alternatives to Bankruptcy

2nd Dec 2009

While there may be talk of the credit crunch being over, the long term effects of a recession are still continuing to be felt.

Bankruptcies in England and Wales are at an all time high and it remains to be seen whether the numbers of bankruptcy orders being made will decrease any time soon.

But if people are still feeling the long term effects of the recession, are there any alternatives to bankruptcy?

The answer is that, with the right help and advice from specialist solicitors and insolvency practitioners, there are.

One such alternative is an informal arrangement with your creditors whereby they agree to stop any interest and charges for a certain period to allow you to get back on your feet.

At the end of the agreed period the repayments to your creditors will re-start, but the break from making payments may be invaluable.

It is of course at the discretion of your creditors as to whether such an agreement will be accepted, as are the terms upon which the agreement will be made.

If an informal agreement can not be made with your creditors, a formal arrangement could be made by means of an Individual Voluntary Arrangement (IVA).

An IVA is a formal agreement with your creditors to pay them back a percentage of what you owe them, over a period of time.

It is backed by a court order and therefore requires the assistance of a solicitor and specialist insolvency practitioner, whose role is to supervise the receipts and payments made by you.

An IVA is normally agreed for a period of five years and part of the payments made by you are used to pay the costs incurred by the supervisor.

Once an IVA is in force, no creditor can enforce any debt against you.

An IVA does, however, require the approval of at least 75 per cent before it can be backed by a court order.

One further alternative to bankruptcy is a Debt Relief Order. This is an order you can apply for if you can't afford to pay off your debts. It is a cheaper option than going bankrupt.

In order to qualify for a Debt Relief Order you must have debts of less than £15,000 and be on a low income.

The order usually lasts for a year and during that time none of your creditors can take action against you to enforce their debt.

It is essentially a formal agreement to temporarily suspend any payments being made by you to your creditors. There are, however, conditions to be met before such an Order can be granted.

As always, specialist advice should always be obtained before any action is taken.

* Paul Monaghan is a specialist in corporate recovery law with BHP Law. He can be contacted on 0191-221 0898.

Author: Paul Monaghan (PaulM@bhplaw.co.uk)