Bankruptcy or Debt Management Plan – Complete Comparison

bankruptcy or debt management plan

Bankruptcy has to be the last option to consider when it comes to finding a solution for your debts.

Although it gives you a fresh start without any creditors, bankruptcy is a pain to deal with as it gives your valued assets to your creditors.

Luckily, bankruptcy is usually avoidable as there are alternative ways to pay off debt. Keep on reading to learn more about bankruptcy and how you can avoid it.

What Is Bankruptcy?

Basically, bankruptcy is a way for you to pay off your debts with your assets. It is one of the least sought debt solutions as it can leave the debtor with almost nothing. 

In other words, if your financial situation can’t support the weight of your debts, your creditors are paid through the only option left: your assets. When you keep missing the monthly payments of your debts, your creditor might decide to make you bankrupt.

Your bankruptcy case also affects your credit rating. Your bankruptcy order is retained by credit reference agencies and it stays in your credit history for around 6 years. Your credit report will be cleared after this time.

Remember, your creditor can’t make you bankrupt if you’ve only missed one monthly payment. They can only take this action if the debt hasn’t been paid and you aren’t abiding by the credit agreements. 

Also, keep in mind that you can go bankrupt for both unsecured debts and secured debts.

But is there a time when bankruptcy may not be that bad? 

Well yes. Bankruptcy can sometimes be a sensible option, especially when it can save you some money. However, before making a decision, contact a money advice service for proper counselling on the matter. 

Where to Get Debt Help From?

There are a number of companies providing an insolvency service (and also data protection) to help your debt problems go away. You can visit their website or get their phone number for beneficial debt help and advice.

For more information, you can get in touch with a counseling agency. They will connect you to a credit counselor or an insolvency practitioner registered in England and approved by the Financial Conduct Authority. 

The credit counselor will assess your situation and will see if some repayment plan that you can afford to pay can be negotiated with your creditors. If your creditors don’t agree on the monthly payments you’re willing to offer, they can choose to make you bankrupt.

How To Avoid Bankruptcy With A Debt Management Plan?

A Debt Management Plan (DMP) is a plan offered by a debt management company that best suits you and your finances. 

In debt management plans, an insolvency practitioner talks directly to your creditors and works out a payment plan for your debts. Debt management plans are for people who have multiple creditors and are having a hard time paying them off one by one.

In a debt management plan, you pay the money to your company counselor and he hands out the payments to your creditors. 

Also, you cannot take more credit card debt while you’re on a debt management plan. Credit cards are frozen while you’re on a debt management plan because credit cards add to your debt; and you can’t do that while you literally have a debt management plan to eliminate your debt.

The fees associated with a debt management plan aren’t a lot. You just have to pay the respective fees of the counselor appointed to you and the general fees of the company. 

For this money, you will have some highly qualified people fight your debt case for you and work out a payment plan that you can afford. In almost all cases, getting a debt management plan lowers your monthly payments down to the value which you can afford.

Individual Voluntary Arrangements

In Individual Voluntary Agreements (IVAs), you have to pay all the disposable income in excess of your living expenses to your creditors for a specified period of time.

The terms of the agreement might include that even if your disposable income increases during an IVA, you’ll have to pay that extra money as well to end the IVA early. IVAs usually last around five years.

However, after these five years, you will be debt free. Whether it was student loans that you wanted to pay back or some unsecured debt, it ends with your IVA.

In some rare cases, where you miss your scheduled IVA payments, your IVA is extended for some time until the missed payments have been compensated for.

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bankruptcy or debt management

Frequently Asked Questions (FAQs)

Do DMPs Actually Help In Avoiding Bankruptcy?
Yes, DMPs are a good way to end your debts. This is because in a DMP, a professional is negotiating with your creditor. They know what payments to offer, and when. This makes the case in your favour as now you’ll have a registered counsellor handling your debt payments.
Do I Still Have To Pay Child Support While On A DMP?
Yes, child maintenance payments are taken into account before calculating the amount of your monthly payments. You still have to pay child support, even if you’re on a DMP.
Can You Go To Jail For Not Making DMP Payments?
No, you cannot go to jail for missing DMP payments. Only your assets can be seized by the court.
Does A DMP Have An Impact On Your Credit Scores?
Yes, a DMP lowers your credit rating and has an impact on it for the next 6 years.
How Long Can I Be Chased For Debt In The UK?
You can be chased for debt up to 6 years since the last notice to make payments. After that, your debt becomes null.

Wrapping It Up

Bankruptcy can be a painful process to experience, which is why it is essential to look for other options to get rid of debt..

Try and get a debt consolidation loan or a DMP (if you’re able to afford it) because when you’re bankrupt, you are barely left with anything in your name.

If you have any more questions or need debt help, do reach out at the given email address. I’d be happy to help.

Good luck!

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Do you know your debt free date?
Do you know your
debt free date?
  • Affordable repayments with an end date in sight
  • Reduce pressure from people you owe money to
  • Stop interest and charges from soaring