Bankruptcy Questions Answered

Bill Bailey asked:


In the UK, there are four main options for dealing with debt:

Debt consolidation - borrowing more money but reducing your monthly payment;

Debt management plan - reducing your monthly payments without borrowing more money;

Individual voluntary arrangement - a formal legal procedure which offers a write-off of debt after a prescribed period of time, generally, five years;

Bankruptcy - a formal legal procedure, which offers a write-off of debt after a prescribed time period of, generally, one year.

It is important to stress that there is no ‘right’ way to deal with a debt problem. Each option has its own set of advantages and disadvantages. And just as important, identifying the best option is as much to do with personal and family implications as with the financial issues.

Debt consolidation: How it works

Debt consolidation involves borrowing more money to repay your existing debts. The selling point is that the payments on the new loan will be less than you currently pay on your existing debts. This allows you to bring your income and expenditure back into balance, so solving your debt problem.

The problem with debt consolidation is that the reduction in monthly payments often comes at a heavy price.

Paying back your debt through a new loan over a longer period may sound good but take careful note of the figures. While the reduced monthly payment will help your budget, the calculation of how much you will have to pay back in total will be an unwelcome shock.

Also unwelcome if you are a homeowner may be the news that your consolidation loan is secured against your house - in effect, you are taking on a new mortgage (which is why these loans are often only advertised to homeowners). Fall behind on the consolidation loan payments and you risk losing your home.

Debt consolidation: things to be wary of

Watch out for debt consolidation companies who heavily sell additional insurances to accompany the loan. You may need protection against unemployment, sickness, or critical illness, but you will almost certainly get it cheaper if you buy it separately rather than bundled in.

If you fully understand the implications of what you are doing and are able to access new borrowing at a low rate of interest, debt consolidation can be an effective approach to a debt problem. But more often than not, it leads to worsening debt and sometimes even potential homelessness. If you are considering debt consolidation you must be aware of the downsides.

Debt consolidation is big business. And that means that some of the companies who offer loans are far more concerned with maximizing their profits than in ensuring that a consolidation loan is the right option for you. Watch out particularly for debt advice or debt management companies who suggest an additional loan without full consideration of other options.

A few years ago, debt consolidation loans were only available to those with flawless credit ratings. If you had current or previous arrears on your debt payments it was unlikely that you could access more borrowing. However, there is now a wide-range of companies that specialise in lending to borrowers who are ‘credit impaired’ or ’sub-prime’.

Of course, these companies do not do this out of the goodness of their hearts. The number of borrowers with current or past payment problems means that there is a large market for this borrowing with interest rates that are higher (sometimes much higher) than you might expect.

Remember that high interest debt consolidation loans - which are secured on your property - are a win-win for the lender. If you repay, then they benefit from the higher interest charges; if you default, they can repossess your home and get their money back early.

Debt consolidation loans can be a good option if:

You have the self-control to see debt consolidation as a ‘once and for all’ solution.

You use the reduction in outgoings to bring your budget back under control, pay back any future credit card spending in full each month without fail, and start saving for future unexpected or irregular costs;

You are prepared to shop around to identify the best value debt consolidation loan;

Debt consolidation loans can be unhelpful if:

You use some, or all of the debt consolidation loan for reasons other than repaying debt. If you need to borrow £10,000 to repay debt, then don’t be tempted to borrow £12,000 to also pay for an impulse holiday;

You don’t shop around and end up paying a high rate of interest on the debt consolidation loan;

You don’t realize the implications of taking on a secured debt against your home.

Debt consolidation loans can be disastrous if:

You continue to accumulate debt after taking on the consolidation loan.

You cannot repay a secured debt consolidation loan and lose your home.

Advantages of debt consolidation:

You can reduce the total amount you pay each month on debt repayment.
Maintains your credit rating.

Disadvantages of debt consolidation:

Normally greatly increases how long it takes to repay your debts.

Often only advertised to homeowners.

Debt management plan

How it works

Any bank, finance company or credit card lender owed arrears by a consumer has the option to seek a judgment in the county court to reclaim their money. However, where you are not trying to avoid payment but are in genuine financial difficulty, the court is likely to order repayments based on your ability to pay.

The court accepts that you must first pay your ‘priority’ debts - these are debts where non payment would lead to the loss of your home (mortgage or rent payments); loss of an essential utility (gas, electricity, telephone, or water payments); loss of an essential item (cars or other hire purchase items); or could theoretically lead to imprisonment (magistrate court fines or council tax payments).

The court further accepts that you need to make other payments to maintain you and your family - so reasonable amounts for housekeeping, travel, clothing, and other similar items are taken into account.

What remains after this exercise is a guide to the amount of money left to repay your bank, credit card and other ‘non priority’ credit debts. The court will make a repayment order based on the figure but also take account of monies owed on other credit agreements. In addition, the court will freeze the interest charges so that the debt no longer increases.

The negotiation of reduced debt payments simulates the approach taken by the court. It involves producing a detailed income/expenditure schedule, showing how much ’spare’ money is available after priority payments have been made and proposing a fair distribution of this money. At the same time, a request is also made for further interest charges to be frozen.

Arranging a debt management plan is something that you can do reasonably easily yourself, particularly if you use the self-help booklets available from National Debtline or your local Citizens Advice Bureau. However, it is also (unfortunately) true that the banks and card companies will sometimes respond more positively if a debt advice agency writes on your behalf.

Fee charging debt advice agenciesDebt advice agencies offer a similar debt advice service to the Citizens Advice Bureau but will also administer your reduced payments negotiated under a debt management plan. Your local CAB will often arrange for you to make reduced payments, but you will be responsible for making these payments.

The fee charging companies will also arrange that you pay your money over to them and they will pass it on. However, this additional facility comes at a price - the fee charging companies typically keep up to 15% of your regular payment as their fee and the whole of your first month’s payment may also be swallowed up in administration costs.

Of course, paying somebody else to administer your payments means it takes longer to repay your debts. There is therefore little point in paying for a debt management company unless you think their service is worth it.

Advantages of debt management plans

Allows you to bring income and expenditure back into line without taking on more borrowing;

You can follow this option by yourself or with the help of a no fee charging debt advice agency.

Disadvantages of debt management plans

There is no guarantee that your creditors will accept the reduced payments and/or freeze future interest payments;

The time taken to repay your debt will increase. The time will further increase if you pay your debts through a fee-charging debt management company;

Your credit reference file will show details of the Debt Management Plan. This will affect your ability to get credit in the future.

Debt management plans can be a good option if your financial problems are caused by a temporary reduction in income and the situation will improve in the near future.

Debt management plans can be unhelpful if:

Your ability to pay your debts will not improve within 12 months.

Debt management plans can be disastrous if:

The fees taken by commercial debt management companies and the refusal of banks and credit card companies to freeze interest means that your debt steadily increases.

Individual Voluntary Arrangements

At best, an IVA can be an excellent solution for somebody faced with an overwhelming debt problem. At worst it provides a moneymaking opportunity for the increasing number of companies that advertise IVAs. You must make sure that this is a suitable option for you and that the company operating the IVA fully understand and represent your financial situation.

How It Works

A specialist insolvency adviser, called an Insolvency Practitioner, draws up a proposal for you to repay a specified amount in full repayment of your debt. The payment can be made in a lump sum or over a period of time - often up to five years. The companies owed money agree to write off any debt still outstanding once you have made the agreed payment. The amount paid under the IVA is normally calculated with reference to the amount that would be collected if you were to be made bankrupt.

There is normally no up-front fee to pay in using an Insolvency Practitioner - the costs of the IVA are written into the arrangement. But you should be aware that the costs can be high (we are talking thousands of pounds for even a simple IVA). It is vital that you understand how the costs will affect how much you will pay and the proportion of your payments that will be paid to your Insolvency Practitioner rather than to repay your debt.

Advantages of IVAs:

Allow you to repay your debt at an affordable rate over a reduced period of time. Alternatively, the IVA may be proposed on the basis that your family or friends are prepared to help meet your debts;

Offers the advantages of bankruptcy but without some of the restrictions and disadvantages.

Disadvantages of IVAs:

The costs of setting up an IVA can be surprisingly (some would say outrageously) high;

You may have to pay an upfront fee;

Defaulting on the payment arrangement can lead to bankruptcy;

The regulation of Insolvency Practitioners is fragmented and many consumer groups report situations where Insolvency Practitioners seem more interested in the fees that they earn rather than the success of the IVA;

Your credit reference file will contain details of your payment default.

IVAs can be a good option if:

You face a large debt problem and a debt management plan will involve payments over a greatly extended period;

You are faced with bankruptcy but wish to avoid the associated restrictions and disadvantages;

You identify an Insolvency Practitioner who you can trust to propose a realistic, workable, and, if appropriate, sustainable arrangement which works to the benefit of both you and the companies to whom you owe money.

IVAs can be unhelpful if you don’t shop around to find an Insolvency Practitioner who understands your problems and who you feel you can trust.

IVAs can be disastrous if you agree to make regular payments that you know you won’t be able to sustain.

BankruptcyBankruptcy is a formal legal process that draws a line under your debts. It involves the sale of any items of value that belong to you (but some items, such as your basic household goods will not be taken). It may also require that you make regular payments from your income if you can afford this after you have paid your essential domestic and work costs.

Bankruptcy is not an easy way out of paying your debts but it is an option to consider if you face overwhelming debt pressure and can see no possibility of being able to meet your liabilities. It is generally a more attractive option for those with few or no assets.

How bankruptcy works

Bankruptcy can be started by the person who owes money or by the firms who are waiting for missed payments. Banks and other finance companies will generally only make someone bankrupt if they think if it is financially worthwhile. However, this does not stop them threatening bankruptcy even where they know that they will not follow through. If you are being threatened with bankruptcy, you should get advice urgently (your local Citizens Advice Bureau or other free independent advice agency is a good starting point).

Once bankrupt, you are under the control of the bankruptcy trustee. They will arrange to sell items of value belonging to you (including your house if you are a homeowner and the sale value is more than your mortgage debt) and will want to discuss what regular payments you can make. The trustee has the power to examine the way you conducted your finances prior to bankruptcy, particularly if you gave away or sold assets. You are required to cooperate with the trustee.

A recent change in the law means that those experiencing bankruptcy for the first time can normally expect to be discharged after a maximum period of one year. You are then released from your debts (although you may be required to make regular payments for up to three years). You are expected to learn from your experience. People who go bankrupt again get a much tougher time.

Advantages of bankruptcy:

Limits the period over which you repay your debt;

Provides legal protection in respect of your debts;

Disadvantages of bankruptcy:

You are subject to the control of the court;

You face the loss of assets other than those necessary to satisfy your domestic needs, your tools of the trade, and vehicles you need in the course of your employment (which does not include travel to and from work);

Gas, electricity, and telephone contracts will need to be put in to the name of another adult who lives with you. If there is no other adult, you will have to change to a prepayment system or lose the service;

You cannot hold certain public offices while you have not been discharged from bankruptcy, nor can you continue as a director of a limited company;

Your access to credit will be severely restricted until you are discharged; thereafter you will pay higher rates of interest until you have re-established your credit rating;

Some debts will not be included within the bankruptcy. These include mortgage and other secured debts, magistrate court fines, debts payable after personal injury claims, and debts to the student loans company;

Any determination by the court that you have acted dishonestly or recklessly can lead to restrictions on your discharge from bankruptcy;

You will normally lose the use of your bank account and will be forced to open a ‘basic’ account with no overdraft and limited other facilities;

You should assume that your employer, friends, and neighbors will find out about your bankruptcy. Your bankruptcy will be publicized in the local Press and is available to anyone who wants to request information about you;

You will have to pay £475 to petition for bankruptcy.

Bankruptcy can be a good option if:

You face a substantial debt problem, few assets, and limited ability to pay your debts;

Bankruptcy can be unhelpful if:

You are attracted by the advantages without fully considering the downsides of the bankruptcy procedure and aftermath;

Bankruptcy can be disastrous if:

You have assets which will be seized by the bankruptcy trustee;

Your employment, business or personal relationships will be detrimentally affected.

Bill Bailey is a freelance financial journalist. More financial advice at http://www.schnafflehound.com/finance



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Mark Aucamp asked:


The United Kingdom personal debt today stands at £1,458 billion and the government intend to increase their debt to £175 billion this year and similar figures for the next three years. The latest figures available from Credit Action this month suggests that the average household debt is £59,765 including mortgages, £1.02 billion will be spent on credit card purchases today and £199 million will be paid in interest each day.

If you feel you are burdened with massive debts and finance problems then just consider these daunting statistics. Every ten minutes a home or property is repossessed and an average thirteen people are declared bankrupt every hour of the day. The government have even resorted to printing money to help their problems and 10.3 million British adults, have been hit so badly by the economic downturn that they are relying on their credit cards and other borrowings to help pay for there everyday living expenses. According to Post Office research they expect 2.6 million people are planning to spend more on their credit cards this year than they did last year in order to make ends meet.

What options are available if you are debt stricken?

There are currently four different ways to get out of debt.  Each solution is designed to help people with different circumstances to repay their debts. They are:-
Debt Consolidation

If you have several debts like credit cards, personal loans, overdrafts, etc. Then you could arrange a personal unsecured loan that would allow you to repay the debt back over one to seven year. Alternatively you could choose to remortgage your home in an effort to spread your repayments over a longer period. This would bring down the monthly cost but you would pay more for the debt over the term of the new mortgage. Always think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage.  Be certain that you can afford the new monthly repayments. If you cannot afford the repayments than one of the other debt solutions may be more suitable to your needs.

Debt Management Plan

This is an informal agreement between you and your creditors. Your creditors are the companies that you owe money to like a personal unsecured loan, car loans, credit cards, store cards, overdrafts, etc. A statement of account is drawn up detailing your income and expenditures like mortgage payments, gas, electricity, food, council tax, etc. This identifies the money you have left after you have paid all your bills to pay all your creditors. This can be arranged by yourself or you may choose one of the debt Management charity or the services of Debt Management Company. It is possible to have the interest rate frozen along with any other charges.

Individual Voluntary Arrangement or better known as an IVA

If you have accumulated unsecured debts of more than £15,000 and you are unable to meet your commitments to your creditors to repay the money you owe them. An Individual Voluntary Arrangement (IVA) is a legally-binding agreement which is administered by an IVA practioner and agreed between you and your creditors. A realistic monthly contribution is agreed that is based on your ability to repay. The IVA agreement will last for a pre-determined length of time which is usually five years.

In order to proceed with an IVA agreement you will need at least 75% of your creditors to agree to your proposal for it to go ahead. At the end of that period any outstanding debt remaining will be written off and you will be debt free. You should be aware that if you are a homeowner you may be required by your creditors to release some of the equity in your home to help settle your IVA.

The benefits of an IVA are the potential to write off a percentage of your overall debt; it will safeguard your home and your car; it will alleviate the day-to-day pressure from your creditors and it will help you avoid bankruptcy as long as you keep up the payments

Bankruptcy

Involves being declared bankrupt by a court of law for a period of 12 months, you are not allowed a bank account, and you could find yourself paying your creditors for the next three years before the full debt is written off. Your bankruptcy will remain on your credit file for the follow 6 years and some lenders in the future may still penalise you for many more years. You will be able to keep most of your household goods, your car for work as long as it costs around the £1,500 and you will lose your home and any equity in your home.

Bankruptcy could be the right solution if you have little to lose, you cannot afford to pay back your debts, you live in rented accommodation, possibly not paid a very high salary and you don’t have lots of very valuable assets. Then bankruptcy is a drastic way to get out of debt.  The alternative solutions are a debt consolidation loan, an individual voluntary arrangements or IVA.  Both an IVA and a Bankruptcy are considered as insolvencies by creditors and your credit rating will be affected for the next 6 years.



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Peter Baker asked:


Want to break free from your debt burden? Get out of Debt with Expert Debt Settlement Programs and Credit Counseling…
Debt Settlement is a process of writing off your outstanding debts through a settlement company that negotiates with all your creditors and comes up with a reduced amount so that you can pay off the debt amount easily. Easier said than done, eliminating your bad debts is a daunting task that entails systematic planning and proper execution of planned settlement strategies.

The debt settlement plan can eliminate your debt completely by paying less than you actually owe. It helps creditors get their money repaid without spending funds for collection. That is the reason why most credit card companies and other lenders show interest in the debt settlement or negotiation process.

Although one can work out the debt reduction process on their own, but many a times, it is seen that the creditors and collection agencies refuse to negotiate with consumers directly. This is where a good and reputed settlement company comes into play. Besides executing the consolidation deal easily, there are certain other benefits that make a debt settlement company a better and feasible option.

Mostly in Negotiating with creditors and restructuring the debts that one owes, the original debt amount is reduced to 40% to 60%, thus saving you thousands of dollars. Most debt negotiations are based on extensive time durations. This way you can extend the time span for your debt repayment. The scheme sounds lucrative and is fruitful if you take the right decision at the right time.

A debt elimination program is canvassed to settle your debt after keeping your current debt situation in mind. It drafts steps, that can help you drain your principal debt amount, eliminate your late fees and provide you with the flexibility to repay your debts within the chosen time frame. It consists of a date-wise schedule and systematic payment plan towards settling your debt.

Debt settlement plans can affect your credit score, which may reflect on your credit report for about 7-10 years. But this is a better than being bankrupt. Debt settlement is a wise option to clear your poor credit score unless you can pay the amount at one go. You can anytime opt for credit counseling for settling / repaying your debt.

Credit counseling is a process that educates on how to write off incurring debts that cannot be repaid. Credit counseling sometimes involves negotiating with creditors to fabricate a debt management plan for a consumer. Credit counselors design a data management plan in such a way that it reduces payments, fees and interest rates for clients. Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions, offered to consumers in a debt management plan.

When you undertake debt management credit counseling, it will allow you to examine certain spending habits. Though, most of the time we know about our expenditures, sitting down with a counselor and penning down each bill will help you perceive your limitations. You will start feeling better within a few sessions with consultants, who help you get out of this embarrassing situation most amicably.

Debt counseling can help you establish a plan to regulate your spending behavior. Generally, you pay a small fee to have a credit counselor work with you. However, beware of dealing with experts who may charge you high amount or promise you the heaven.

Being in a financial fix can stress you and your relationships. Credit counseling can help get you out of debt and back on track. Many people struggle to find the right credit counseling service. A good and compatible credit service can make you debt free in five years (in most circumstances). Make sure you are aware of how they plan to do that, and request monthly statements showing your progress.

There are thousands of debt consolidation companies, vendors, banks, etc., offering free quotes online. Exploring such options on the Internet, help you choose from the variety of debt settlement plans, that suit your situation in the best possible way.

If you want to avail an affordable debt settlement service without spending too much time and energy, then AmeriQuote.com offers the ideal platform. Offering an array of low interest mortgage options, home equity loans and flexible debt consolidation programs, AmeriQuote serves to provide a compatible, reliable, secure and stress-free method to shop for Life Insurance, Health Insurance, Auto Insurance and Financial needs.

Understanding your requirements, AmeriQuote allows you to receive free online debt quotes as simply and quickly as possible. Best of all, AmeriQuote Finance Center provides faster, easier and free way to shake-off your monetary burdens.

In case you are looking for complete financial freedom, get in touch with AmeriQuote.com and get debt quotes online – FREE. Apply Today!



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TA Honey asked:


Knee deep in debt and looking for a way out? Well, you will easily find people willing to help you but the catch is “debt consolidation services” come for a fee! There are many dealers in market without requisite skill sets or qualification who may take advantage of a tight situation. You would find here some handy information on dealing with debt.

For addressing immediate insolvency concerns in UK refer to 1986 Insolvency Act. Bankruptcy can be an option when dealing with overwhelming debt you can not possibly meet under any circumstances. Bankruptcy is a way of making a fresh start, the assets are shared fairly among the creditors.

An individual can be declared bankrupt by usually three sources. An individual can voluntarily declare insolvency. A creditor who had extended an amount of more than 750 pounds can declare the individual bankrupt, given the circumstance. Bound by IVA too an individual can be declared bankrupt. Refusing to acknowledge the proceedings or the bankruptcy petition can also lead to declaration of bankruptcy.

The consequences of bankruptcy can be that you lose ownership of all your assets. Whatever assets you own will be divided fairly amongst the creditors. Moreover one declared insolvent will have to seek permission of the creditor. There will be certain restrictions on a person declared insolvent, such person is barred from the responsibility of Justice of Peace, member of parliament, as Chartered Accountant or Lawyer and cannot act as a director of a company. you may be publicly examined by the court. Also such a person can not indulge in trade under any other name without informing the creditors.

Bankruptcy does indeed bring you peace of mind if nothing else. It will also ensure creditors that full investigation of debtor’s affairs has been carried out, that nothing including the debt consolidation loan have failed. Though it leaves a mark on the credit history it does release you to make a fresh start.



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Kris Koonar asked:


It’s a question that has stumped wise men (with overdrawn credit limits) for generations. Do I file for bankruptcy, or do I get debt consolidation loan and spend ten years paying off my debt?

The simple answer is, if you can do the latter, do it.

Sure, bankruptcy means you don’t owe anything to anyone (well, sometimes it means you need to sell your assets, but more often than not you’re starting afresh), but it also means a big fat black mark on your record that will never go away (despite what some people say about seven years being a magic slate cleaner).

Bankruptcy marks you as a bad risk for every potential lender. Mortgage lenders, credit card companies, employers - they all see that credit history and get the same furrowed brow.

And even worse, the Bush administration has chosen to pass laws that mean, now, if you go bankrupt owing money to a credit card company, they can take your family home.

Yes, that’s right, the government has made it law that, unlike big businessmen who can go bankrupt every second year without penalty, normal people like you can have your family home taken off you just because you couldn’t keep up with your MBNA payments.

Of course, the credit card companies were behind the bill, and spent millions on Congressmen and Senators to ensure it passed without too much debate, and millions of Americans who look at their debt and think, “Well, I can always go bankrupt”, have no idea that if they do, they’ll genuinely lose everything they have.

Which leaves us with the other option - debt consolidation.

Debt consolidation is when you gather all the debts you owe, pool them into one amount, and borrow that amount from a bank or other financial institution, to be repaid over a long period of time, at a set (and low) interest rate.

It means that everything you owe to Sears and Best Buy and MBNA and Citicard is suddenly paid off, and all you owe is one long-term debt to a stable, secure, eager to help you stay afloat bank.

Think about it - why carry six debts that all need to be repaid in the short term, when you can have one debt that doesn’t have to be completely repaid for years? It just makes sense.



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Ed Pearson, Debt Dr asked:


When asking prospective clients in the UK if they have ever been in an IVA the most common response I get is ‘what’s an IVA?’

20 years ago in 1986 the insolvency act introduced the IVA. IVA stands for Individual Voluntary Arrangement A formal, it is court ratified, process that allows somebody struggling with unsecured debts to make a payment proposal to their creditors.

IVA numbers are increasing dramatically at the time of writing. A record number of people in England and Wales went insolvent between July and September 2006. The Insolvency Service said 27,644 people went bankrupt or entered into Individual Voluntary Arrangements to manage their debts.

Why are IVA’s proving to be ‘popular’?

Creditors like them because it can often provide greater returns than would normally be realised if the debtor went bankrupt.

Debtors like to make use of an IVA because it freezes interest on debts, it makes the payments more manageable, it protects their home, it is a very discreet debt solution (unlike bankruptcy) and allows company directors to retain their position.

After a period of normally 60 monthly payments, any outstanding amounts of unsecured debts included in the IVA are written off.

That sounds great, how do I organise an IVA?

Well initially your unsecured debts need to be in excess of £15,000. If you have more than £15,000 of unsecured debts and are struggling with debt repayments then it’s time to talk to a professional.

Only qualified professionals can administer an IVA. This is usually an insolvency practitioner but there are a number of firms that have sprung up to effectively ‘package’ an IVA ready for the insolvency practitioners to complete the IVA. The insolvency practitioner then becomes the trustee for the IVA.

To get an IVA agreed, a clear statement of your financial position will need to be drawn up. This will include all assets (house(s), cars, endowment policies, cash plans, pension details, etc) and then details of your monthly income and expenditure.

All these details are put to your creditors along with a proposed monthly payment.

What about my house?

Importantly, if you own your own home, then any equity you have available in the property will form part of the IVA proposal as part of the repayment offer. A secured charge is applied to your property equivalent to the proposal put to the creditors. The charge is normally applied to your property during the first year of the IVA and normally realised in the fourth year of the IVA.

If the property is jointly owned then only the debtors share of equity is normally considered under the IVA.

So what happens when the creditors vote on my IVA?

The creditors vote on whether to accept the IVA proposal or not. If more than 75% by value of unsecured creditors vote in favour of the IVA then it has to be accepted by all the unsecured creditors.

What do you mean more than 75% by value?

Well if you have 4 creditors but say one of them is owed 76% of your total amount of unsecured debts then it is only their vote that counts. If they accept the IVA proposal then the others will have to accept payments. Equally, if the 76% creditor declines the IVA proposal then the whole proposal has been rejected.

What happens if my IVA is rejected?

Well first thing, remain calm. There is an opportunity to submit an improved IVA proposal if your funds allow. Failing that it may be time to consider an informal payment plan or perhaps even bankruptcy. This is best discussed with a debt help and advice professional.

What if I miss any of my IVA payments?

A well drawn up IVA will allow for one or two missed payments in the IVA but missing payments is a serious business. The IVA is a court ratified agreement. Missing payments in an IVA runs the real risk that the trustee will legally have to force you into bankruptcy.

What happens to the IVA if my circumstances alter?

If your circumstances alter then this needs to be reflected in your IVA. That means should your income fall then the repayments should also be reduced. Equally, where your income improves then more money will be made available each month to your creditors.

Well I made it to the end of my IVA, what now?

The trustee will issue a ‘Statement of Completion’ normally within 3 months of the last payment of the IVA. The trustee will also notify the Insolvency Service and reflect this in their records.

Finally, do be aware and get proper IVA advice.

Do sit down and get an experienced professional to go through everything in detail. Be aware of all the factors that will affect you if you decide to enter into an IVA. Whilst this article is accurate, it cannot be used to replace advice from a professional organisation.

Ed Pearson is a Debt Dr. Debt Dr specialise in debt help and advice for individuals and small businesses. Ed can be contacted on 0845 123 4000 or in confidence on 07970 659266.

http://www.debtDr.co.uk ‘prescribing life without debt’

This article does not constitute regulated advice. Please remember that any action regarding financial advice should always be taken only after considering the specifics of your own situation.

To find out more about Ed try, http://www.ecademy.com/account.php?id=41788



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Jason Holmes asked:


If you are in profound debt and struggling to find a way out, opt for debt solution. None of the debt solution measures can eliminate all your debts. But it can certainly reduce your debt burden. Debt consolidations, debt settlement, bankruptcy, are some of the effectual debt solution measures. Not all the procedures will suit you. To choose the most relevant debt solution you should understand the different means of debt solution.

1. Debt consolidation: Debt consolidation is the most accepted debt solution method. This process helps you to lower your interest rate and waive off the late fees. If you opt for debt consolidation, the debt consolidation company merges your multiple debt payments like the medical bills, credit card bills, unsecured debts and all other payments into one. You would have to make a single monthly payment to the debt consolidation company and the company shall pay your debts.

2. Debt Settlement: This is the most effective means of debt solution. In fact it is an alternative solution to bankruptcy. The debt settlement company negotiates with all your creditors to reduce your payable amount to nearly 40% to 60%. This is the process by which you stop paying to the creditors but keep saving the money instead. After your have accumulated at least 50 % of the loan amount, your debt settlement company shall negotiate with your creditors. Even you can negotiate with your creditors while settling your debts. But if you are unable to do so certainly contact a debt settlement company. However it is very important to take the correct decision at the exact time, while opting for debt settlement. Be careful while selecting the correct debt settlement firm.

3. Bankruptcy: While opting for debt solution, if all other options fail, you can file a bankruptcy. It is the easiest way to reduce or eliminate debts. When all other options, to come out of the debt phase are closed, you can declare yourself as a bankrupt. Basically, it is a legal process in which the person or the company declares that he is unable to pay his debts. The process of bankruptcy helps them to eliminate their debts or repay them under the protection of the bankruptcy court. The total number of bankruptcies in US is at a rise. Recently 1,794,795 number of people have been discovered to be bankrupt.

Despite having several advantages, bankruptcy should be avoided. If you are declared a bankrupt, then it will be reflected on your credit report for at least 10 years, from the day when you have been declared a bankrupt. Bankrupt people cannot easily purchase or rent a home or purchase insurance. Personal Bankruptcy can spoil your social status to a great extent.

Though you can pick up a debt solution process yourself, but always contact a financial expert before opting for a reliable debt solution.



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Musa asked:


As everyone struggles to come to terms with the menace of the credit crunch and the fact that it makes a debtor of many of us, one important thing on the minds of most people is how to rid themselves of a debt burden. While many have taken steps to either repay or work out alternative means of settlement, a trend that is increasingly getting popular is the decision to become bankrupt.

Although this option may provide a relief for borrowers who are unable to repay debts, it does come with its price. For example there could be some credit and financial restrictions imposed on anyone who is bankrupt. Regardless of this, it is still the only outlet for many who are debt-ridden.

In Scotland the issue of debt has posed so much concern for the government and people that in April, this year, a new set of rules that would allow people take the easy way out was introduced. Intended to help people who are unable to shed their debts by other means, the policy allows those who are classed as Low Income, Low Asset debtors declare themselves bankrupt and be free of the crippling burden.

Before the introduction of the LILA rules debtors who had no means of repaying debts only had to wait for their creditors to start a legal process seeking the recovery of their money and the courts could in the end let such people become bankrupt and off the hook.

However, many creditors would rather use debt recovery companies to harass debtors until they pay up or seek a resolution, somehow, Citizen Advice Scotland lamented. This means debtors were at the mercy of their creditors, perpetually.

But the turn around in this situation was the introduction of the LILA rules, which now give an alternative means to insolvency. Even as it has been estimated that up to 5,000 people in Scotland may take advantage of it and sort themselves out, the main worry for many people is that there is a £100 application fee that must be paid to be able to access the scheme. And many debtors that are genuinely in need of help can’t afford to pay the fee.

Citizen Advice Scotland is therefore worried about this problem and argues that many people may end up not being able to shed their debt through bankruptcy. Basing its position on a report compiled by its head of social policy and public affairs, Susan McPhee, the advice agency said there was evidence that although some of its clients were able to access the scheme and get the help they needed, some could not afford to pay the fee and have been excluded. Crucially, those who are in the list of the excluded are people who are ordinarily the ones who need the scheme most, according to Citizens Advice. And in this group are the low incomes and those with health conditions.

This complaint has already drawn a response from the Scottish government, whose spokesman admitted that the rules were made to cater for the needs of those who could neither repay their debt nor use other means to become bankrupt. But he swiftly denied that the £100 fee constituted a barrier for many who would opt for insolvency through the policy.

Although the government may be right in saying that they were unaware of such claims, the fact that it comes from a credible source makes it worthy of a serious attention. One way to get round the issue is for them to properly investigate and see whether the policy is helping those it set out to help. Otherwise, it becomes unnecessarily a failure.



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Debt Settle Inc asked:


10. Not having a plan in case of emergency

A lot of people cut their budgets very close.  If you have you money portioned out precisely for your regular expenditures and you haven’t left anything in the budget for emergencies, how will you pay for repairs if your car breaks down?  If your house suddenly needs repair?  If you have emergency medical bills not covered by your insurance?  It is important to make sure you have a plan to cover emergency spending.  If that means cutting things out of your regular budget that may not really be necessary, make sure you do that.

9.  Spending money on luxury items you don’t need

This one should be obvious, but a lot of us violate this simple rule anyway.  When you see a new car, an article of brand-name clothing or piece of electronics equipment, ask yourself a couple of questions.  1) Is there money in my budget for this? And 2) Do I really need this?  If it’s an impulse buy, odds are first answer is no.  The second answer is probably no in any event.  Think about whether you’d rather have the item or financial stability.  

8.  Buying extravagant gifts for friends and family

This is basically the same as the previous item on this list.  The difference is that some people have a problem not with buying things for themselves, but with buying things for others.  Selflessness is commendable, but it doesn’t have to be as expensive as you might be making it.  It’s not going to do your friends and family any good for you to go bankrupt buying them extravagant birthday presents.

7.  Letting small expenditures add up

If your money is disappearing every month and you can’t figure out where it’s going, odds are you’re not keeping track of minor expenditures.  Say you take a trip to the grocery store to pick up a gallon of milk for three dollars.  While you’re there you pick up some ice cream, maybe a twelve pack of soda.  You spend three dollars on candy for the kids in the checkout line.  Swing through a drive-through on the way home to get some food.  Why not get the large for only a few cents more?   Each of these items individually may not be very significant, but by the time you get home, you may have spent $30-$40 during you trip out for some milk.  If these sound like the kind of expenditures you might make without keeping track, that’s probably where your money is going.

6.  Not saving money

If despite your best efforts you find yourself owing more money than you expected, it can be a huge relief to realize you have some money saved up that can help gt you out of trouble.  Try putting a percentage of every paycheck into a savings account you never touch.  If something you didn’t expect rears up and you have to pay a lot of money, you may find that you can take care of it without declaring bankruptcy.

5.  Not keeping track of your funds

How much money do you currently have in your checking account?  How about your savings?  What have you put on your credit card in the past week?  If you don’t know the answer to all three of these questions, you’re probably going to wind up overspending.

4. Putting too much on your credit card

Credit card debt is a serious problem in this country.  One main reason is that people treat them as free money without really planning how they will pay off the money they put on them.  Another is that people don’t think about the interest rate they will have to pay on purchases on their credit card.  If you are making a purchase on credit that you could pay in cash, it may be better to use cash than to risk interest rates running away from you.

3. Letting late fees build up

Almost everyone is late with a bill from time to time.  What can really kill you is being late with your bills so often that late fees and surcharges start to build up.  Before long, the late fees you pay every month may be as large as any of your other bills.

2.  Ignoring bills

This should be obvious, but some people simply don’t take action.  If you don’t pay your creditors, they are within their rights to take collection action against you.  Most of them, however are willing to be lenient if you will simply talk to them.  A lot of companies will allow you extensions if you need them as long as you talk to them in time.  Give it a try.

1.  Spending more than you earn

Everything else on this list is derived from this one simple rule:  Know how much you make, and spend less than that.  It’s sounds simple, but it can fell complicated.  Once you start keeping track of you earnings and expenses, however, you’ll probably be surprised at how easy it becomes.

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Greg Smith asked:


Most people don’t understand bankruptcy until they are faced with it. Even then, a lot of people still don’t understand what is really happening. In the most general terms, bankruptcy allows a person having financial difficulties to wipe out his or her debt and start fresh. People file bankruptcy for numerous reasons: divorce, unemployment, death in the family, lawsuits, illness, medical bills, foreclosures and credit card debt.

Bankruptcy allows the creditor to receive a fair share of the money that the debtor can pay back, while giving the debtor a fresh start. There are two types of bankruptcy to fulfill this need: Chapter 7 and Chapter 13.

Under a Chapter 7 bankruptcy, all unsecured debts are wiped out. These debts include medical bills, legal fees, utilities, deficiency balances and credit card debt. The debtor may lose property to the court that will be sold in order to pay creditors. There are certain debts that will remain. By law, they cannot be discharged through Chapter 7. These debts include alimony, child support, taxes, certain student loans and debts from fraud, larceny and fines.

Chapter 13 bankruptcy helps people with regular incomes that wish to pay their debts but are unable to do so at the current time. With court supervision, a repayment plan is established between the debtor and his creditors that will pay the debts under an extended period of time.

In 2005, a new law was established — the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. So many consumers were abusing bankruptcy. You may have heard of people simply filing for bankruptcy repeatedly. Some simply had their debts discharged and went out and bought until they were in the same situation again. Other consumers needed protection from unethical lenders. This law makes it more difficult for consumers to file for bankruptcy.

Before a bankruptcy can be filed, the debtor must enroll in a credit counseling session. Before the bankruptcy is complete, the debtor must complete a financial management seminar. The consumer will learn to budget, manage money, use credit wisely and the basics of consumer information. These classes aren’t always free, some come with a mandatory fee.

Means testing will also apply to bankruptcy filings. The means test is an effort to force more debtors into Chapter 13. Any debtor who is able to repay 25% of what they owe, or $10,000, to his or her creditors will not be allowed to file for Chapter 7 bankruptcy. Basically, if the debtor is proven to be able to pay back a significant portion of his debts in the next five years, then he should be required to.

Financial advisors will tell you that bankruptcy should be your absolute last option. It will ruin your credit history. It isn’t easy to be granted bankruptcy and it isn’t easy to get over it. You should consider every available option before you decide to file bankruptcy. Often, you can go ahead and attend a consumer financial management class. Learn how to get out of debt and avoid bankruptcy.



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