Bankruptcy is a legal way to deal with your debts if you cannot afford to pay them all. However the consequences of petitioning for bankruptcy, or having your creditors apply to have you made bankrupt, are far reaching so it is best to try and avoid it if possible by seeking debt advice as early as possible. Although much of the stigma associated with bankruptcy has passed, the legal ramifications in terms of what can be borrowed in the future and some career choices may be limited.
Not all debt problems lead to bankruptcy. Once debt problems start to take hold getting quality debt advice can save both time and money in finding methods and ways to get back in control. Many organisations offer free debt advice and can help implement whatever debt solutions are appropriate for dealing with your situation.
Even overcoming small amounts of debt can seem insurmountable to some, especially if you have never experienced debt before. But there are many actions that can be taken to help ease the burden of debt that are easy and simple to implement, but that does mean a change in behaviour by both you and your family.
The first step may involve drawing up a debt management plan (DMP). This takes into account all income and expenditure and helps to identify ways to free up cash to help manage payments. Getting debt advice will help you to understand what lenders may accept by way of rescheduled loan payments or whether a new debt consolidation loan could reduce the total monthly payment you have to make each month.
Those people that still have a reasonable credit history could find it beneficial to consider a debt consolidation loan. Even if you have a damaged credit history you may be able to see a reduction in monthly payments which will create some valuable breathing space in which to repair your finances.
If your debt is more serious, it can be addressed with an Individual Voluntary Arrangement (IVA). These debt management agreements were introduced as a final step before being forced into bankruptcy and they have a number of benefits. If a payment plan can be brokered with lenders then the IVA will be formally agreed by the court and a reduced payment amount over a period of up to five years will be made to your creditors. No further action can be taken against you by the companies that you owe provided you keep up with the repayments as you have agreed in the IVA.
Unlike bankruptcy an IVA leaves you with many of the assets that you have, such as your home. In addition, an IVA is not publicized so no one need know about your debt issues unless you choose to tell them. Finally, with an IVA, there are no long lasting effects as there are associated with being bankrupt about future borrowings or possible job prospects.
Bankruptcy should be avoided wherever possible. These days there is so much good advice available and many ways to manage debt properly that bankruptcy should not be a problem for most.