Is bankruptcy all I have left?
A friend of mine recently fell on hard times. Many personal issues built up and sadly he accumulated over £17000 of debt. He came to me and in a bit of a panic and started asking about his options. He was adamant that he would have to settle for bankruptcy. He saw no other way out of his personal financial hell and thought no other debt solutions (such as an IVA) would be available to him.
Bankruptcy, I explained to him, is the last port of call for people with very little options left. I explained to him the consequences of such final action. For example it may clear his debts, but he would be left with seriously a bad credit rating. It would be very unlikely that he would be able to keep his house, car, any valuable furniture, any unapproved pension schemes, his life insurance may be at risk and worst of all he may loose his job depending on how his employer viewed his position. He would effectively be financially black listed for a minimum of 12 months to a possible maximum of 15 years.
He told me that this wasn't an option, and I told him that it was O.K as there were other options available to him. I discussed debt solutions with him, including simply saving and managing your own debts. Again this wasn't an option for him as he told me the creditors were one step away from banging on his door. He needed professional help and fast.
It was only when i mentioned to him the possible debt solution namely an IVA (Individual Voluntary Agreement), that his face perked up a bit. I laid out to him the details of an IVA, how unlike bankruptcy you do not have to declare you are partaking in such an arrangement. He liked the fact that his financial affairs could remain private. Secondly he was reassured that he could clear his debts, in an average time of 5 years, and not have to loose his house, car or any other personal assets.
In return for a more lenient system of recall, he would, in the long run, be paying back approximately 40-60% of his debts. In return for agreeing to a legally binding debt solution such as an IVA, his creditors would see he had done all he can to repay them and after 5 years they would write off his remaining debts. And just like that, after 20 minutes of straight talking and a cup of tea later, his nervous twitch subsided when he realised that he had options and would be free from debt within 5 years and his life could get back on track.
