Bankruptcy Alternatives By Benedict Smythe At Isnare.com Ezine Articles

Bankruptcy is an option an individual in dire financial difficulty would be forced to take. This is considered as the last debt management tool or resort a debtor could ever take because of the stigma that comes with its implementation. Being published in the London Gazette, made available on line and registered, bankruptcy orders have a far reaching effect. Everybody would be aware of your misfortunes. Bankruptcy will stay in your credit record for a period of 10 years. Its lasting effect could be detrimental to future employment and future financial dealings.

Bankruptcy, however, do have some alternatives. A debtor who is aware of his incapacity to pay debts as they become due should consider entering into a compromise with the creditor and have an informal arrangement to schedule payments. But as it is informal and not legally binding, the creditor on a whim, could renege on the arrangement and demand the full payment of the debt.

Another alternative is the administration order. Instead of paying directly to the creditors, this court-based procedure would require the debtor to make regular payment to the court. However, this is only applicable to debts not more than £5,000 and a regular income is necessary to make the monthly repayments. Irregular payments would result to the cancellation of the court order. In such case, the debtor will be subjected to the restrictions imposed on a bankrupt individual.

IVA is another bankruptcy alternative. In an individual voluntary arrangement, the debtor, with the help of an insolvency practitioner will apply to the court and make a proposal to the creditors to pay all or part of the debt.

What are the workings of an IVA and how is it done? First off is to enlist the help of an authorized insolvency practitioner. The court and the local Receiver’s Office can provide you with a list of names of said practitioners. The court, upon your application will issue an ‘interim order”. This order will prevent creditors from proceeding with any bankruptcy petitions against the debtor.

The insolvency practitioner, acting in your behalf will present to the court the debtor’s proposal. The insolvency practitioner may deem it necessary for the debtor and the creditors to have a meeting to discuss the proposal. The creditors will then vote on the acceptance of the proposal. It is important therefore that all creditors be informed because the arrangement will not be binding to the creditors who were not able to vote.

An IVA gives a debtor the chance to decide on what to do with his assets and on how to pay the creditors. He may even persuade the creditors to let him retain assets such as the house or the car. This is not so in a bankruptcy order. Unlike in bankruptcy, the debtor will not be asked to pay certain fees so that the overall cost of an IVA is lesser.

An individual voluntary arrangement is an opportunity for the debtor to avoid bankruptcy. But if the IVA is disapproved and rejected by the creditors, the debtor will still be faced with bankruptcy. It is therefore necessary to know if the creditors are likely to approve the proposal.

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