Filed under: Bankruptcy
If financial problems wrack you with worry, take comfort in the knowledge you are not alone. In fact, the list of the rich and famous who have struggled with debt is a surprisingly long one. Here is just a small selection;
Thinking of buying a whole town? It is not cheap and may well lead to bankruptcy. Just ask Kim Basinger. The Batman star planned to turn the town into a tourist attraction, building movie studios and hosting a film festival and paid and initial £20 million for her troubles, but met financial difficulties 4 years later in 1993, and sold her stake. Her loss was untimely as she shortly after pulled out of movie Boxing Helena, which led to the studio suing and winning a cool £5.5 million. Bankruptcy was filed for soon after.
Shane Ritchie may have been the landlord of the Queen Vic on Eastenders a few years back, but if you ever bump into him in your local, he is unlikely to be the one buying the drinks! Ritchie faced arrears on the £8,000- a month mortgage of his £2 million mansion which he eventually sold to avoid bankruptcy. His fresh income was then splashed across a 40th birthday party before putting his final pennies into a film, box office flop Shoreditch. Friends then stepped in to help Ritchie after he failed to pay the mortgage for a year and he had his car repossessed.
Self proclaimed ‘baddest man on the planet’ and former heavyweight champion of the world Mike Tyson earned more than £165 million in his career, which saw him become a household name. Tyson’s career skewed off course however, as he openly admitted to being addicted to a rather unhealthy concoction of, “…chaos, money, jail, drugs, alcohol / liquor, girls & strip clubs”, and his knock-out blow came in 2003, when Tyson declared bankruptcy. ‘Iron Mike’ has long since sold his mansions and fleet of fast cars and now lives in a rented home.
“I spent a lot of money on booze, birds and fast cars. The rest I just squandered.” Famous words from the late George Best, the Manchester United football legend. Indeed, George’s life was one long party. After his drinking problems spilled onto the pitch causing Best’s career at the top to end prematurely, he turned to gambling to ‘fill the void’. Neither his money nor his liver could keep up with his hectic lifestyle however, and Best was declared bankrupt in November 1982, and sadly passed away in November 2006.
March 11, 2010
Instead of declaring bankruptcy, how about trying these commonly used debt solutions….
1. An IVA. These were introduced by the Government as a way of debt management without resorting to the complex legal process of Bankruptcy. You negotiate a percentage with creditors of how much you can pay back, and if they agree you may end up paying significantly less than before. It’s not an easy option however, so you should seek advice.
2. Debt Consolidation. Instead of paying the huge interest and fees on separate credit, store cards and loans, these firms can give you one loan which means one payment. Although these are advertised heavily on TV, they are rarely suitable as they mean a very long term commitment.
3. Remortgaging. If you have equity in your home, remortgaging can be an easy way of getting some extra cash at a low rate. It does mean however that the length of your mortgage will increase and again, it’s not for everyone. It could be a risky option, given the ups and downs of the mortgage market.
February 26, 2010
One alternatively to being bankrupt is not to be in debt in the first place. That’s easy for me to say, since I have this knowledge first hand. There’s so many simple rules that you can live by to ensure this never happens and I will try to outline the lessons that I have learned herewith.
Make a budget; you can never underestimate how much this saves you, work out your monthly incomings and outgoings. If you want to be really thorough keep a diary of all your spending over a month. Cut out all the unnecessary things, cut out the things you can live without and shop around for anything at all you can find cheaper. Every penny helps.
Secondly, cut out the vices in your life, drink, fags, gambling, woman or whatever is your passion for spending too much money unnecessarily. Lastly, don’t buy things that you don’t need, it sounds easy but it isn’t, impulse buying was always a weakness for me and its easy to bang it on a bit plastic and worry about it later. Avoid the worrying about it later part.
January 25, 2010
Bankruptcy should only ever be seen as a last resort. The consequences are serious, affecting the person’s ability to retain their home or earn a living through their own business, for up to 15 years. The increased pressure from being in such a dire long-term situation puts pressure on the person emotionally, effecting personal well-being and relationships. Possible alternate avenues to clear debt include:
Option 1
Review current finances and consolidate debt; take into consideration incoming and outgoing finances and prioritise payments. There are payments that you must not miss at any cost and these include your mortgage and household utilities. Cut out non-essential outgoings and lower loan or credit card payments by consolidating debt into lower monthly payments.
Option 2
Use a debt management company to devise a debt management plan and act as a middleman between yourself and your creditors. Debt management companies will review what you must pay, for instance household builds, and split the remaining money between the creditors. Beware: not all creditors will be willing to go down this route and County Court Judgements (CCJs) may ensue.
Option 3
Many of us will have already seen the glossy television ads promising to wipe away 75% of our debt. Individual Voluntary Arrangements or IVAs is a formal arrangement between the debtor and creditor, arranged by an Insolvency Practitioner (IP). Unlike bankruptcy the IVA should protect your home during the term of the arrangement. However, IVAs are complicated solutions and should be investigated in detail before being pursued.
December 12, 2009
What is an IVA? An IVA is an Individual Voluntary Arrangement which gives you the facility to set up a formal agreed payment plan with your creditors. In order to be eligible you must have debts of over £15000 that you cannot afford the repayments on.
What is Bankruptcy? Bankruptcy is an order from a court that means your finances are controlled by the Official Receiver and there are a series of things you cannot do when you have been made bankrupt. This also means your bank account will be frozen and you will likely lose your home (if you’re a home-owner)
What debt solution is better for you? That’s a tough call that only you can make with the help of some serious debt advice. Overall an IVA seems to offer you much more freedom in having some control over your assets, in my humble opinion (but I’m no financial advisor). When you are bankrupt you can be made to hand over everything that is not deemed essential to your living (eg work items or household items like clothes). With an IVA you can still operate your bank account and have your wages paid in as normal. You still have to provide detailed information on all your income and expenditure and then you will be told how much you have to repay to your creditors. If you do not keep up with this you could be subject to bankruptcy proceedings.
The time in which you will be paying the debt back does vary between these two. The IVA is usually over 5 years whereas the bankruptcy order means you will usually be paying the debt for 3 years (although the bankruptcy order may only last one year, the agreement to pay is 3 years). Although you will be paying for less time with the bankruptcy order, it does affect you for longer as you can not be company director, Managing Director, MP or Judge and you will have severe difficulty in obtaining a mortgage (especially after the sub prime credit crisis in America).
So overall, if you can have an IVA over a bankruptcy order then this would seem the better option for the majority of circumstances but this depends largely on your debt.
September 30, 2009
Bankruptcy in the UK
Bankruptcy is a very difficult decision, but there are a few alternatives to the procedure.
Firstly, an IVA (Individual Voluntary Arrangement) is an option. This is where you arrange an agreement with your creditor in which they decide to pay all or part of your owings. This is flexible according to the individuals own circumstances. The arranged fee is generally more than the creditors would receive if bankruptcy is filed by the person(s) in debt. Read this article on ‘What is IVA‘ if you’d like more information.
Secondly, an Administration Order can be installed in which a court will decide your payments scheme. The small print is that you must have a regular paying wage and debts that do not exceed 5,000 GBP to be eligible for an Administration Order.
Thirdly, a similar, yet more informal agreement can be attained which is an agreement between an individual and a creditor in which they both agree to a schedule of payment. This is referred to as a Family Arrangement. This however is not legally binding, and the creditor can decide that the arrangement will be scrapped and the full amount should be repaid.
If Bankruptcy is a real possibility for you and your family, it’s not something to go into before you’ve explored every other option first and considered what else is available. Before you go Bankrupt, understand all other debt solutions. Even if you do end up going bankrupt, it won’t be the end of the world. You can start again on a clean slate. THINK positive. CHANGE your spending habits. ASK for help.
September 1, 2009
Before declaring yourself or business bankrupt it is worthwhile seeking debt counselling to make sure it is the right option.
Provided the directors of the company have and continue to act responsibly, voluntary liquidation may be an option for debts over £50,000. Although the company will cease to trade, the directors won’t be held financially culpable. If the company has no assets it will be necessary for money to be set aside to cover the practitioner fees.
If there only have a few creditors it may be possible to reach an ‘informal agreement’. It is similar to an IVA, but requires the agreement of all creditors. It is necessary that the company or individual has the spare money to offer creditors, but may result in a significantly reduced level of payment.
An IVA offers a less intrusive alternative to bankruptcy. You make a payment to creditors for a period of 60 months. It allows you to keep your home and maintain your professional status. Your insolvency isn’t printed in the local press.
Further Advice:
If you’d like to talk to someone about debt solutions and alternatives to bankruptcy, we’d recommend contacting an expert for free advice. Dropping into your local Citizens Advice Bureau or calling a company like Debt Free Direct is a good start. There’s also plenty of UK based forums where others going through IVA and bankruptcy talk about their experiences which could be a great place to get involved and ask some questions to people who are actually going through it before you make up your mind.
July 7, 2009
The dreaded B-word, bankruptcy is an increasing possibility for many families and businesses and it can appear to be an attractive alternative for those struggling to pay off large debts, but what may seem like a get out of jail free card does have some long term implications that can be far worse
The first advice I would give to someone thinking about bankruptcy would be to get some free debt advice and look at all options especially an IVA before declaring yourself bankrupt, once the bankruptcy proceedings have started there can be no going back.
Once declared bankrupt by a magistrate, you will find yourself in a very limited position within the world of finance; it will be impossible to get a mortgage or a credit card, all assets will be lost such as house, car etc and there are restrictions on being a managing director or in charge of a company. You may also lose your career and some professions will not employ those who are or have been bankrupt. As well as all of this there is the social stigma; bankruptcy is advertised in local papers and if you are renting a property then the landlord will be informed.
The best alternative I’ve seen to bankruptcy is an IVA (Individual Voluntary Arrangement) which is similar to bankruptcy but is not surrounded by so much doom and gloom. It is a voluntary agreement between the debtor and the creditors on a settlement figure, and this is paid into a fund over a 5 year period. Interest charges are stopped and the creditors are not allowed to pursue any further legal action against the debtor. Having an IVA rather than declare yourself bankrupt has numerous advantages, the main being that you can keep your house and car (if it’s small and essential). The affordability of monthly payments is agreed in advance and fixed so there are no unexpected sales of assets. Employers do not require information about current or previous IVAs and having an IVA will not be printed in the paper. Your credit rating will not be harmed as much, but it will still be poor. I can’t see why anyone would choose bankruptcy over an IVA unless the creditors cannot agree on a figure for repayment or they wish to carry out an investigation into the debtors affairs.
It is never really in the best interests of the creditors to make someone bankrupt as they usually will get less of their money back through bankruptcy than if they agreed an IVA with the debtor. Court costs of bankruptcy are very high and repossessed houses that have quick sales do not achieve their maximum price.
As the credit crunch goes into full swing it seems likely that bankruptcy and IVA cases will increase as the nation falls further into debt. If you are teetering on the edge of financial collapse or ruin then get some free advice and take some weight off your mind.
December 10, 2008
If you’re in debt, it’s easy to be seduced by IVA advertisements offering debt help and an easy way out, but be warned, these companies are looking to make money from your frustration. There is no easy way out of debt or the possibility of bankruptcy , you have to consider all your incomings and see exactly what you’re wasting and where you can make cutbacks. You need to see what interest you are being charged and work out clearly who you owe money to. No company is going to find a ‘little known legal loophole’ to give you a cause to not pay. These companies are just trying to reel you in to pay for their services.
If you are honest with your creditors when you find yourself in financial difficulty, they are far more likely to treat you fairly. You may find yourself paying a reduced rate of interest whilst a debt is cleared, and even be able to offer a reduced lump sum to clear it sooner. Hard work is the key to paying off debts; not wishing on stars and wasting time on schemes like this.
There are some excellent debt charities, such as CCCS, who offer free debt counselling and advice. They will help you work out a debt-repayment plan for free. If you’ve run up debt, you have a simple moral obligation to tighten your belt and pay it off.
February 15, 2008
It is possible that an IVA could right off 75% of your unsecured liabilities, but it is likely that the people would stand to benefit from this kind of reduction are better favoured by bankruptcy anyway.
Those who have a relatively low paid job and no property could almost certainly get away with paying about 25% of their debts plus insolvency practitioner fees – still more than 25% though. Creditors would be happy to get anything from this debt and have probably virtually written it off in the first place.So rely on ISA savings or speak to a debt adviser.
If you have a well paid job, home etc you are highly likely to have to repay most of what you owe. Whilst an IVA does potentially allow you to right off some debt, it is more of means of returning order to your finances as it helps you balance the books. The IVA will end after 5 years and your credit rating will be completely clear after 6 years providing you with a fresh start.
February 8, 2008
