If a person's finances are really bad, they might be forced to file for bankruptcy. Because of the stigma that comes with it, this is thought to be the last thing a debtor could ever do to deal with their debt. Bankruptcy orders have a wide range of effects because they are published in the London Gazette, put online, and registered. Everyone would know about your bad luck. If you file for bankruptcy, it will stay on your credit report for 10 years. Its long-term effects could hurt future job prospects and financial transactions.
There are, however, some ways to avoid bankruptcy. If a debtor knows he won't be able to pay his debts as they come due, he should think about making a deal with the creditor and setting up an informal payment plan. But because it isn't official and isn't legally binding, the creditor could break the deal at any time and ask for the full amount of the debt.
The administration order is another choice. In this court-based plan, the debtor would make regular payments to the court instead of directly to the creditors. But this only works for debts that are less than GBP5,000, and you need a steady income to make the monthly payments. If payments were not made on time, the court order would be cancelled. In this case, the debtor will have to follow the rules for people who have gone bankrupt.
IVA is another way to avoid bankruptcy. In an individual voluntary arrangement, the debtor asks the court for help and, with the help of an insolvency practitioner, makes a plan to pay all or part of the debt.
How does an IVA work, and how is it put together? First, you need to find a licenced insolvency practitioner who can help you. You can get a list of the names of these practitioners from both the court and the local Receiver's Office. If you ask the court for a "interim order," it will give you one. With this order, creditors will not be able to file for bankruptcy against the debtor.
The insolvency practitioner will take your place and present the debtor's proposal to the court. The insolvency practitioner may think that the debtor and the creditors need to get together to talk about the proposal. The creditors will then decide whether or not to accept the plan. So, it's important that all creditors know about the plan, since those who didn't get a chance to vote will not have to follow it.
A debtor can decide what to do with his assets and how to pay his creditors through an IVA. He might even be able to convince the creditors to let him keep the house or the car. In a bankruptcy order, this is not the case. In an IVA, the debtor won't have to pay certain fees like they would in bankruptcy, so the overall cost is less.
An individual voluntary arrangement gives the debtor a chance to keep from going bankrupt. But if the creditors don't agree with the IVA and turn it down, the debtor will still have to go bankrupt. So, it's important to know if the creditors are likely to agree with the plan.
