INDIVIDUAL VOLUNTARY ARRANGEMENTS
If you opt for an Individual Voluntary Arrangement!
This is similar to a Debt Management Plan but is actually a legal agreement under the Insolvency Act and much more stringent than a DMP.
So the difference here is that an IVA needs to be set up via an Insolvency Practitioner regulated and appointed by the Secretary of State for Business, Innovation and Skills.
There is unfortunately no regulation with regards to who is placed in an Individual Voluntary Arrangement!
It's no secret that some people are in IVA’s which are often of no use to them and Bankruptcy may be a better option, if they have no property or fixed personal assets. The Insolvency Practitioner will ask you for a list of all debts including amounts and he will tell you that he will negotiate a massive write off of your debts, possibly between 50-80%. Approx 70% of your creditors will need to agree to the IVA and they always do as something is better than nothing. A five or six year IVA repayment plan will be drawn up and you must pay the premium to the IP for the whole term. What many do not know is that at least the first year of the IVA contributions are kept by the Insolvency Practitioner, for setting up the IVA. There will also be commission payments made to IVA introducers and IVA drafters. Unfortunately many IVA’s are being miss-sold daily in the UK, when in a lot of cases people with no or little fixed assets could declare personal bankruptcy for a cost of approximately £680.00. Imagine you have 100K in debts, you take an IVA for 20% of the total debt which equals £20,000.00 to repay over 5 years. That's £330.00 a month for a dragging 5 years and your IP gets £3,960.00 from the initial years payments!
DEBT MANAGEMENT PLANS
There are lots of companies offering these plans to supposedly make your life so much better. You will go to someone like Baines & Ernst who will make out that they are doing you the biggest favor on Earth, when all they are really doing is something with your debt that you can do yourself. The concept of a DMP is that you give them a list of all your creditors, they then write to them and offer a seriously reduced payment, you pay the DMP company a fixed monthly sum and they pay all your creditors. Creditors hate dealing with debt via debt management companies!
Why?
Because they skim off 15%-30% of your monthly payment when really you could just do the job yourself and pay your debts back quicker!
You will also be required to ask your DMP for permission if you want to take on any new credit. Also if you come into any monies then you are expected to pass this onto your DMP to reduce debt.
Apart from the lucky few we all need some form of credit to keep us going through our daily/monthly/yearly existence.
OPTING FOR BANKRUPTCY
If you are bankrupted by a person or a company then they must pay the fees, which is why if you have no or little assets then chances are you will not be bankrupted. You must never try and hide assets as this is looked upon very badly by the Court. If you have little or few assets then bankruptcy may be a better alternative than an Individual Voluntary Arrangement or Debt Management Plan that will drag on for years. You can apply to the Court for a personal bankruptcy for a cost of £680.00.
If you want to go bankrupt then you must complete a fairly lengthy application booklet for the Insolvency Service.
In this book you will need to list all your:
Creditors details including creditor name and creditor address. Debt account policy or reference numbers and amounts owed.
Assets to include property, vehicles, machinery, bank balances and any other items of value that you personally own.
Income details like any income you receive from property, investments or any job you may hold.
Expenditure such as rent, mortgage and bills.
You then need to submit all your bankruptcy documentation and the fee to your local Court dealing with bankruptcy. All your documents will be reviewed and you will then be given a date to appear at Court and see a judge. The judge's job is to look at your case, speak with you personally and decide if he or she will declare you bankrupt. If the Judge decides or sees that bankruptcy could have been avoided then they may not allow the bankruptcy order. This will mean that your £680.00 fee is lost and you still have all your debts. If the order is allowed then that is it, you are bankrupt and you will get a call from the Official Receiver who may or may not want to personally interview you. This will depend on the amount of bankruptcy involved and things like any ongoing criminal proceedings you may be facing. Interviews are fairly intense and the Official Receiver will want to go through every single item of the bankruptcy. At the end of the interview the Official Receiver will decide if your bankruptcy was unavoidable and not your fault or if you are just dumping debt!
When you take a call from the OR immediately after bankruptcy you will be told that your bank accounts are frozen but most people always empty them before the call. You will also be asked if you have a car and where are the keys. This is when it does not pay you to have a paid for car and where car finance or lease finance wins. The car cannot be taken by the OR if it is not paid for so consider that if you opt for personal bankruptcy.
The OR will also make a decision based on your employment status, income, expenditure as to whether or not you will need to make bankruptcy monthly repayments to your creditors.
