Bankruptcy Alternatives UK – The Top Other Options
For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.
For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.
Are you worried about your debts and thinking about bankruptcy? You’ve come to the right place. Over 170,000 people visit our website every month seeking advice on debt solutions.
This article will explore different ways to manage your debt. We’ll talk about:
- What bankruptcy means
- How bankruptcy can happen
- How to decide if bankruptcy is the best choice for you
- The cost of applying for bankruptcy
- How bankruptcy can change your life and your credit score
It’s quite common to feel concerned about debt. In fact, in 2021, Citizens Advice helped approximately 280,000 individuals in England and Wales with debt.1
Some of us have been there too. But remember, every problem has a solution, even debt.
Alternatives to Bankruptcy and How They Compare
There are alternatives to bankruptcy – not every person who experiences difficulty paying their debts or has debt problems, in general, should pronounce themselves bankrupt.
Before we dive into the specifics of each debt solution, let’s start with an overview. Below, you’ll find a table that explains the main differences between Bankruptcy and other solutions.
| Bankruptcy vs Alternative Solutions | How It Can Help Tackle Debt | Suitable For Individuals… |
|---|---|---|
| Bankruptcy | A formal legal process that writes off most debts but has significant consequences, including potentially losing your home and negatively impacting your credit rating and job prospects. | …with significant debts that cannot realistically pay them off. More severe option with substantial consequences. |
| Debt Relief Order (DRO) | A formal solution that freezes debts for a year, after which they may be written off. | …with a total debt under £20,000, low income, and minimal assets, who cannot afford to pay off their debts. |
| Individual Voluntary Arrangement (IVA) | A formal, legally binding agreement that typically lasts for 5 years and can write off a portion of your debt at the end. Credit rating will be negatively affected. Homeowners can keep their home. | …with a larger amount of debt who can commit to a fixed repayment plan and want to avoid bankruptcy. |
| Debt Management Plan (DMP) | An informal agreement to pay back non-priority debts in a more manageable way, but does not write off any debt. | …seeking a flexible arrangement without legal proceedings. |
| Consolidation Loan | A consolidation loan involves taking out new credit to pay off existing debts. It can simplify payments and potentially reduce interest rates. But, you could also end up paying more interest overall. | .. with multiple debts looking to consolidate into a single payment, usually with a good credit score to obtain favourable terms. |
| Payment Holiday | Payment holidays offer short-term relief by pausing or reducing payments. Payment holidays don’t reduce the total debt amount and are usually for a short duration. | ..with short-term financial difficulties needing temporary relief from debt payments. |
| Equity Release | Equity release involves homeowners releasing equity from their property. It provides a lump sum or additional income by using the home’s value but reduces the property’s equity. | …with debts and want to unlock the value in their home to pay them off, reducing their property’s equity. (Ideally for older homeowners, usually 55+) |
| Informal Negotiation | Informal negotiation is not legally binding and involves negotiating with creditors for better terms. | …with debts and wish to negotiate terms independently and prefer to have a flexible, non-binding arrangement with creditors. |
Bankruptcy and Individual Voluntary Arrangements (IVA) are formal, lawfully authoritative arrangements between you and your creditors. Both must be affirmed by the court and your creditors need to adhere to them.
There are focal points and dangers to both bankruptcy and IVAs.
Individual Voluntary Arrangements (IVAs)
An individual voluntary arrangement (IVA) is a formal and lawfully authoritative understanding among you and your creditors to take care of your debts throughout some stretch of time.
This implies it’s endorsed by the court and your creditors need to adhere to it.
An IVA can be adaptable to suit your necessities yet it very well may be costly and there are dangers to consider.
An IVA should be set up and regulated by a financial or certified individual, called an insolvency practitioner. This will be an attorney or a bookkeeper.
The insolvency practitioner will charge expenses for the IVA.
In the event that you go to a debt management company for an IVA, seek some answers concerning the amount they will charge before you choose.
A debt management company is probably going to be more costly on the grounds that they charge an expense on top of the insolvency practitioner’s charges.
When to choose IVAs
IVAs might be alternatives to bankruptcy in the event that you:
- own a home or different resources that you would prefer not to lose
- possess your own business
- may lose your employment should you go bankrupt, for instance, in the event that you are a cop or work in the military
- have, or are thinking about applying for, power of lawyer for the benefit of somebody
- have some extra pay every month or a single amount of cash to make reimbursements to creditors
- need to dodge any negative social effect
How a debt solution could help
Some debt solutions can:
- Stop nasty calls from creditors
- Freeze interest and charges
- Reduce your monthly payments
A few debt solutions can even result in writing off some of your debt.
Here’s an example:
Situation
| Monthly income | £2,504 |
| Monthly expenses | £2,345 |
| Total debt | £32,049 |
Monthly debt repayments
| Before | £587 |
| After | £158 |
£429 reduction in monthly payments
If you want to learn what debt solutions are available to you, click the button below to get started.
Risks of an IVA
It’s imperative to realise the dangers associated with an IVA.
In the event that your conditions might change, an IVA may not be reasonable. On the off chance that you can’t stay aware of the installments, the IVA could fail.
In the event that the IVA bombs your creditors will have the option to make a move against you. They could make you bankrupt.
Your creditors may not consent to an IVA.
On the off chance that this occurs, you should discover another debt arrangement.
In the event that you start IVA procedures and it doesn’t work out, you will be in a more awful monetary position since you need to pay expenses to your insolvency practitioner.
» TAKE ACTION NOW: Fill out the short debt form
Bankruptcy vs DROs (Debt Relief Orders)
Another alternative to bankruptcy that I recommend looking into is a Debt Relief Order or DRO.
A DRO is considered a low-cost alternative to bankruptcy and works in a similar way. However, there are criteria you must meet to be eligible for one, such as:
- Have less than £30,000 in debt in the UK, and £20,000 in Northern Ireland. Scotland is not included in this criteria.
- Own assets that are worth less than £2000, plus a vehicle with a maximum value of £2000.
- Have a disposable monthly income of £75 or less.
Debt relief orders work by preventing creditors from chasing any debt you owe for a year.
If your financial circumstances are the same, or even worse, at the end of that year, your debt will be written off.
If your financial circumstances have improved you may no longer qualify to use a DRO.
Bankruptcy vs. Debt Consolidation
In the event that you owe bigger amounts of cash, a decent debt solution in contrast to opting for bankruptcy is to arrange a debt consolidation loan.
A debt consolidation loan is a kind of credit that furnishes you with another amount of cash that you use to take care of every one of your debts.
This may appear to be irrational but can actually aid you in bankruptcy proceedings.
This kind of loan permits you to more readily deal with your current advances or debts and assemble them into one spot.
Rather than taking care of four or five unique lenders every month, you’ll just be taking care of one huge advance every month.
If for example you’ve been battling with a mounting level of debt problems and increasing loan costs, at that point this is a compelling method to rearrange your funds.
Debt consolidation loans won’t work on the off chance that you don’t have any pay, as interest will even now mount up on missed instalments and accumulate into outstanding debts.
Debt agreements in Northern Ireland and England can be viable as a component of more extensive debt management plans that expects you to redesign and rethink your funds.
In any case, you ought to consistently search for debt advice on your debt management plans prior to taking out another advance when you’re seeking debt relief.
I’ve written a guide to help you apply for a debt consolidation loan, plus other useful information I’ve found throughout the years.
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