How to avoid personal bankruptcy

There are many aspects to bankruptcy, some of which may be overlooked by consumers. Having a debt problem worsen is not in anyone’s best long-term interest. Most people may want to avoid a bankruptcy by using a different debt solution. And no matter what your debt situation looks like, consider the following: regardless of whether a creditor has filed a petition against you, bankruptcy could still be avoided.

Receiving advice at the earliest possible stage is advised. Some of your options are the following:

  • Individual Voluntary Arrangement (IVA)
  • Loan Consolidation
  • Income Maximisation
  • Debt Management Plan
  • Loan Consolidation

This might help you to avoid bankruptcy. Someone who has built up an adverse credit history might not qualify for an unsecured loan; therefore, another option is a secured loan. This could allow you to restructure your finances and reduce your total outgoings. Living within your means should be your ultimate goal, as this could allow you to repay your debt and steer clear of bankruptcy.

Though this is possibly a safer option than bankruptcy, it should not be taken lightly. By being a spendthrift and missing payments, you risk losing your house.

How IVAs can help you

An IVA, which is legally binding, might help you to repay your debts within a stipulated period, on average about five years and you would normally be free of unsecured debts after this.

The other benefit to this: barring the most severe cases, you would be able to keep your house. This might be a better option for someone with a family who is nearing retirement age. There is a downside to this, however. Your credit rating will take a knocking for up to six years and you would be compelled to repay as much as possible towards your debts over the 5-year period.

Income Maximisation

This is not another term for a financial product; income maximisation is good financial management to avoid bankruptcy. If you reduce your outgoings to the minimum and try to up your income, you might not be made bankrupt. This is only possible if you were to control your budget.

A good demonstration of this technique is using a consolidation loan that reduces your financial repayments; switching certain service providers to reduce bills; and finding ways to increase your income.

Debt Management Plan

This arrangement is an informal one between your creditor(s) and yourself. They are asked whether they will accept reduced payments. Most creditors might be happy to receive any type of payment at all, however, some of them may say no to this arrangement; it is not legally binding. The lender may also request payment at any time, even though they may have agreed to only receive a percentage.

DMPs do not reduce the amount owed to the creditor. Interest may not be frozen and they may add interest and other charges. Also, defaults may still be added to your credit file and this could affect your credit rating.

Do not make it worse

Recognise that you have debt and decide to do something about it. It is a mistake to ignore it; debt does not go away on its own. Act as quickly as possible, as no professional advisor would be able to help you when things have gone too far.

What if I do not have an alternative?

If you have looked at all the options you might have and nothing suits your situation, you should not feel too worried. There are organisations that can help you, though it is advisable that you know what to expect both before and after you are made bankrupt.