Why bankruptcy should be a last resort
If you have debt problems so large that you will never be able to afford to clear them, the last resort is to declare bankruptcy. However, this decision should not be taken lightly, as bankruptcy is far from the easy option.
A common perception of bankruptcy is that it is a way to start again, to wipe the slate clean of former debt problems. This is partly true, but bankruptcy also puts many restrictions on you as a declared bankrupt, such as the requirement to disclose all of your financial details within a certain time frame. Fail to do this in the allotted time and you could be prosecuted or even fined.
As a bankrupt, you may also have to sell your home and you may also be banned from acting as the director of a company. Even after you have been discharged from bankruptcy after and a period of 12 months, you may also have trouble obtaining credit.
If you have serious debt problems, bankruptcy should not be the first option you consider. You need to explore and exhaust all other debt solutions, to find ways of clearing your debts, before filing for bankruptcy.
An IVA is one of the many debt solutions that may help you. It is an Individual Voluntary Arrangement (IVA) in which you and your creditors make a formal agreement over the repayment of your debts. You promise to make fixed monthly repayments depending on what you can afford, whilst your creditors agree to accept a reduced amount.
Another option similar to an IVA is a Debt Management Plan (DMP), a debt solution in which you pay off what you owe in affordable repayments, depending on your financial situation. This is an informal arrangement, but it can be very useful for people with minor debt problems.
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