For An Alternative Rush

Experts are warning that the number of bankruptcies will continue to rise in the UK. This prediction follows the announcement of figures for the fourth quarter of 2005 which were at an all time high.

According to official statistics 13,501 bankruptcies were filed in the fourth quarter of 2005. This figure represents an increase of 11% up on the previous quarter and even more strikingly it was 38% higher than the same period in 2004.

However, these figures only partly show the rue state of affairs. Britain is facing a personal debt crisis and for every person who is declared bankrupt, plenty more are suffering from serious debt which blighting the quality of their lives.

The widespread nature of personal debt is largely a result of how easy it is to obtain credit. Consumers are encouraged to borrow more than they can afford so that they can spend today and worry about how to pay for it tomorrow. In other words, consumers want instant gratification and would rather get into debt and have the products they want than do without or save money.

The other reason that bankruptcies are on the increase is the changing attitude towards it. Ever since the Enterprise Act of 2002 reduced the period in which people could be discharged from bankruptcy, it has been seen as an easy way to get out of debt.

This perception is very far away from the truth however. There are numerous disqualifications, restrictions and stigmas associated with bankruptcy. And these disadvantages have long term and far reaching consequences.

Consumers who are considering bankruptcy as a way of sorting out their debt problems would be well advised to consider the alternatives. In 1986, the government introduced IVAs as an alternative to bankruptcy which would benefit both debtors and creditors.

An IVA is a good alternative to bankruptcy because there are no fees or legal proceedings involved with it, unlike with bankruptcy. Moreover, an IVA offers a greater repayment of the debt than would otherwise be achieved if the debtor were made bankrupt. For these reasons an IVA is a good alternative to bankruptcy from a creditors’ perspective.

From the debtor’s perspective, an IVA is a good alternative to bankruptcy because it does not have any stigmas of disqualifications associated with it. Additionally:

• Monthly re-payments are based on what the debtor can actually afford to pay

• In most cases, a debtor can keep his/her car with an IVA

• With an IVA as much as 80% of the debt is written off completely

• An IVA enables debtors to clear their debts within five years

Bankruptcy is on the increase because of the growing amount of consumer debt and the mistaken belief that it is an easy option. Although the UK’s debt problem is not going to vanish any time soon, debtors would be well advised to consider alternatives to bankruptcy of which an IVA is possibly one of the best ones.

Clear Start, the National Consumer Debt Advice Service offers free IVA advice: Alternative to Bankruptcy

What you are about to read may stop you making the biggest mistake of your financial life.

In today’s debt ridden society many people are in severe financial difficulties, often for reasons outside their control. Bankruptcy for many, is the last step in a long road of financial pressures but many opt for this solution too early and without considering suitable bankruptcy alternatives. Whilst bankruptcy may get rid of the immediate pressures it isn’t necessarily the end of the problems.

When you file for bankruptcy your life becomes an open book for the court appointed bankruptcy officials. They will pry into all aspects of your life and you will be required to provide all your financial information, including bank accounts, savings, investments and assets. Anything that can be sold or converted to cash, including your family home and any valuable contents, will be disposed of and you may still have part of your income deducted from your salary to pay some of your debts.

But there are bankruptcy alternatives that may be less painful for many. Here I’ve listed 5 bankruptcy alternatives

1. Negotiate with your creditors.

When you get into difficulties you should contact your creditors as soon as possible. Contacting them sends a signal that you want to repay them.

Lenders are anxious to get their money back and sometimes they will go to great lengths to help you. They may be prepared to re-finance your debt to have it paid over a longer period with lower installments.

They will often be prepared to reduce or freeze the interest rate and will even cut the balance owing up to 75%.

2. Refinance your mortgage.

If you have a property, which you own outright or on a mortgage, there is the real possibility of you being able to refinancing your debts using a secured mortgage or re mortgage.

Refinancing your debts involves taking out a new mortgage, or an additional mortgage. Some lenders will lend up to 125% of the property value allowing you to pay all your outstanding debt and may even have some spare cash to treat yourself.

As the new loan is repayable over a long period of time (often 25 - 35 years) the monthly repayments are significantly lower than with short term debt and should be far more manageable

3. Refinance your debts using a debt consolidation loan.

Debt consolidation is where you take a new unsecured loan and use the funds to pay off your outstanding debts. Debt consolidation loans are repayable over a longer term at a relatively low interest rate and as a result the monthly repayments are lower. If the loan is secured on your property then the interest rate and payments may be even lower.

4. Sell your home and downsize.

One of the easiest ways to get out of debt is to sell your house or apartment and downsize or move into rented accommodation. The surplus cash can then be used to pay your debts and you can continue with your life without the pressure.

Selling up and moving home is, however, a difficult and often painful option. If you do sell however. you can determine the price and remain in control. If the house falls into bankruptcy, you lose control and the house may be sold by
your mortgagor at auction for a price often considerably less than the price you can obtain in a normal sale.

5. A formal arrangement with your creditors.

A formal arrangement with your creditors can often be negotiated by specialist debt management companies and is filed with the courts. These arrangements are for 5 years. You pay an agreed amount each week or month to the debt management company and it is then divided between your creditors. While you continue to pay they are prevented from approaching you.

After the 5 year period is over any balance still owing is wiped out and you are free to live your life free of debt. If however you break the arrangement the normal result is bankruptcy.

As you can see, there are several sound bankruptcy alternatives for you to choose from. Everybody is under financial pressure from time to time, however you should not compound your problems by declaring bankruptcy too soon. Instead, choose the bankruptcy alternative that sounds the best for your particular situation and start working to repair your credit now.

Using a bankruptcy alternative means that in a few years you will have rebuilt your credit and will be back on track, whereas with bankruptcy it could be ten years before you can get back to normal.

John Edmond worked for many years in insurance and finance and now writes on credit card management at Credit Card Debt. Go to and Seven ways to get out of credit card debt for another article on credit card debt.

If you think that filing for bankruptcy will solve all your debt problems, you are being misled. Bankruptcy filing can come to haunt you for years and that is why this decision should be taken after careful analysis and deliberation. Plus, you should do your research to explore other bankruptcy alternatives, like debt consolidation, loan deferment, grace periods, etc., as a way to avoid filing bankruptcy.

No one ever wants to file for bankruptcy, because your credit history is ruined for possibly up to 10 years. That means that you may not be able to apply for credit, rent apartments, secure jobs, order utilities, etc.

Bankruptcy does not mean that your debt will be wiped out and you will become debt-free and start fresh. Unfortunately that is the impression most people have and it is not correct. You may be able to lower or even eliminate some bills, but it comes at a heavy cost.

Another disadvantage to bankruptcy is that banks and other financial institutions will exploit you by charging a higher rate of interest. It will take years of good financial management to become ‘clean’ again.

There are many ways to avoid bankruptcy. One of the most standard ways is to do your research by exploring what other alternatives are available to you. You must speak to your creditors to see if you can work out a different payment plan while you solve your financial problems. For instance, if you lose your job and are unable to make some payments, and if you have a good credit history, most financial institutions will work out an arrangement under which you can avoid making full payments till you secure a job.

Some other ideas are to explore options for debt consolidation. Debt consolidation can be defined by the action of combining several loans or liabilities into one loan. Put another way, debt consolidation is the process of taking out a new loan to pay off a number of other debts. Most people who consolidate their debt are usually doing it to attain a lower interest rate, or the simplicity of a single loan.

You will need to make lifestyle changes as well. For instance, you may have 200 channels of cable television but might only watch it a couple of hours a week. There are a lot of good programs on regular channels that you can watch and entertain yourself. Similarly, stop buying coffee in the morning (buy your own coffee and brew some fresh each morning at home). Limit how many times you go out to eat, bring your own lunch box to work, avoid unnecessary trips in the car, don’t talk too long on the phone, and avoid any waste that you see in your life.

Save money all the time and spend less than you earn. Its a well-known saying that the more you save, the better off you will be. Buy insurance, particularly health insurance. The benefits of health insurance are innumerable and are well worth the cost.

Chris Simons is a prolific freelance writer. You are welcomed to visit http://bankruptcy.cyberinformer.com, for more information on Bankruptcy.