Alternatives to bankruptcy

If you are considering bankruptcy, you will be at the end of your financial tether. You will probably have been unable to meet your monthly repayments for some time now. You could have had visits from bailiffs or phone calls from creditors. Almost certainly, you will be feeling burdened with stress and worry.

The first thing to know is that you are not alone. According to the FSA (the Financial Services Authority), half a million households in the UK are experiencing 'serious financial difficulty' meeting debts and paying bills. Almost half of the UK's adult population have money worries - it's a leading source of stress and anxiety.

There are quite a few alternatives to bankruptcy. Some will be better options than others, depending on your circumstances. This article will give you a blow-by-blow look at two of these options.

Individual Voluntary Arrangement (IVA)

An IVA is a formal agreement whereby you pay off a certain percentage of your debt over a certain period of time, normally 5 years. You pay off a set amount every month.

You may have seen those IVA ads on TV saying you can cut your debt by up to 75%? Well, the good news is that this is largely true. The bad news is that - of course - there are pretty serious strings attached.

Pros of IVA are that you generally keep your assets, including your home. You don't have to publish news of your bankruptcy in the newspapers, you can keep running your company if you have one and your creditors are not allowed to pursue you further during your IVA.

However, an IVA is not an easy route. You will have to live on a tight budget for many years. If you have a big gain - like a lottery win - you will probably have to use that to repay the debt. You have to stick carefully to the terms of the IVA and the repayments, or you will be declared bankrupt anyway. Also, IVAs are not free - you will pay your administrator a couple of thousand pounds in fees.

Debt Management

Debt Management is a really viable alternative to an IVA. What happens is that you contact a company who negotiates with all your creditors. If all goes well, they get your creditors to agree to allow you to make repayments more in line with what you can afford - for example, a reduced amount over a longer timescale.

The cons of debt management? Well, your credit rating will be affected. The agreement is not as legally binding as an IVA, so your creditor could in theory change their mind. You will also be charged a fee for this service. However, there is an element of flexibility with a good debt management company that you do not get with either IVA or bankruptcy.

Whatever you decide to do, remember that even by reading this article you are taking positive steps to becoming debt free!