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Advantages of an IVA over bankruptcy
Putting it simply, an IVA is considerably better than declaring bankruptcy. In short, these are the main reasons why this is so.
Firstly, there is no social stigma associated with an IVA. Of course if everyone knew there would be, but unlike bankruptcy (which is advertised) you are allowed to keep in the shadows with the IVA.
Secondly, an IVA does not affect your ability to trade. With a bankruptcy on your record, borrowing becomes tough, whilst with an IVA is easier to borrow.
Thirdly, the fees associated with an IVA are considerably less for the creditor and the borrower than the fees for bankruptcy. This is a large positive considering the financial implications.
Fourthly, with an IVA the individual in debt can keep their assets and save them from forfeiture. Unlike bankruptcy there is open access to the individuals home, and assets. This proves to be the defining reason as to why an IVA is considerably more favourable compared to bankruptcy.
Bankruptcy And The Alternatives
If you are deeply in debt then it may be that bankruptcy appears to be the only option. There are others and below I briefly mention 3 of them. If you are thinking of bankruptcy then your local Citizens Advice Bureau can advice you of your options and who to speak to next.
IVA
An IVA is the most common way to avoid bankruptcy. If you have assets that you would otherwise lose by going into bankruptcy an IVA can offer a level of protection.
Debt Management Plans
Talk to your creditors directly. If your creditor knows that you are really struggling to meet your repayments they may well suggest a more manageable course of action. After all, if you go bankrupt they lose everything.
Re-mortgage
If you are home owner your property is under threat if you go into bankruptcy. If you are in a position where you have regular income coming in but cannot meet your financial commitments this could be a good alternative.
Debt Relief Order
These were introduced in April 2009 as a way for people with limited assets to declare personal insolvency without declaring Bankruptcy.
Dreaming of being debt free? Three tips for today!
The first step is to notice that you have a problem so well down you have completed the first step and hopefully the only way is up! It will take a lot or determination and maybe even some sacrifices however it will be worth it in the end. The second step would be to stop spending. Of course there are always the essentials you need to buy but could you cut down on luxury products and nights out etc. Also it does help to cut the cards up; it means the temptation has been removed.
There are many things that you can do to get you started.
- How about looking at the interest rates on credit cards. Is it possible to switch these over to something that is 0% and stop you wasting money on just paying off the interest which can take years to clear off the balance?
- Earning more money is also a good way to chuck some extra money at the debts to get them paid off quicker. How about extra shifts, a second job or even selling unwanted items on the internet. It can be hard work but remember your aim – to be debt free. It can help setting yourself a goal and give yourself something to work towards.
- Something that is definitely worthwhile doing is drawing up a list of all your incomes and out goings. This way you can pin point areas which may need a bit of work and help to save any money which you can throw at the debt. A budget for food etc can stop any wastage. Also it is a good idea to work out which debts need the most attention, these are usually the ones with the high interest.
The flexible solution to serious debt problems?
Something I frequently read is that an IVA is more flexible than bankruptcy.
An IVA will certainly give you a degree of control over what happens in the event of serious financial difficulty.
When compared to Bankruptcy, there isn’t anywhere near the same level of intrusion into your life and financial history. You provide your practitioner with the information requested, including a breakdown of income and expenditure, so affordability can be determined. Bankruptcy results in a full and compulsory analysis of your accounts and can lead to a Bankruptcy Restriction Order (BRO). This would mean that you can be held accountable for up to 15 years in the event of unnecessary risk or fraudulent activity.
Another appealing factor for many is that you can protect your professional status of employment (lawyer, accountant, police etc) and family home within an IVA. You will still be expected to re mortgage at the end of year 4, but only if this is affordable and sufficient equity exists.
Your IVA will not be advertised in the local press so nobody will be made aware, although it will be recorded on the insolvency register. There are also new debt solutions such as the Debt Relief Order (DRO) released in April 2009 which could be an option for you. But of course, it will largely depend on your financial situation as to what debt solution is best for you.
Debt and Relationships
Two weeks ago I got an email from someone in financial problems asking for specific advice in regards to their relationship. She explained to me that she has been keeping her debt from her partner as they have separate credit cards and asked my advice.
I’m very flattered for the email, but would like to recommend anyone with debt problems to seek professional advice. I’d like to offer you this response, however, which is my personal view.
I would never lie to my partner about debt, as sooner or later he would find out anyway. We share the post, share the bills and share the cost – so lying wouldn’t solve anything. However, it is more of an issue when we lie to our families about how we feel about the debt. Many of us cover the situation up by claiming the debt is manageable or you have it ”all worked out”. In reality, we’re hurting deep down and anxious to find a way of gaining money we haven’t got. Covering such problems up really doesn’t help, as those who care for you cannot help you if they aren’t aware of your troubles. There is a potential for strained family relationships when your debts force you to borrow money from those around you, even though you’re not sure when or if you can pay them back on time. Therefore, debt can harm family relationships if the problem is covered up or hidden.
I hope my perspective has been helpful, and if you do have debt problems, I can’t stress enough, seeking debt advice and communnicating about your debt is the best way forward. I’ve found these debt FAQs really helpful for answering some of my common questions about debt solutions.
Use credit cards for everything but credit
Credit cards are a tricky subject. I don’t want to encourage anyone to spend dangerously on their credit cards or to spend above their means, but I also think it’s good to discuss how to use a credit card in a smart way to actually help control your finances.
First of all avoid the worst way to use your credit card – long term borrowing. If you need a loan it will almost always be cheaper to get it from a bank, especially if you are a home owner. Another method you could consider is your overdraft facility. A friend of mine has a particularly good deal with his bank that works out for him cheaper than a credit card for those small purchases. He finds the charges smaller for his spending needs.
But, assuming you won’t borrow any money for longer than a month or so, there are a lot of benefits to having a credit card. Indeed some goods and services, such as hire cars, are very hard to get without one.
This is because of the extra insurance and guarantees that your card provider gives you. Using your credit card for an expensive purchase can be worth it – I know someone who got £100 back after he broke a new camera. Even though he admitted he was at fault he was still partially covered. It is worth finding out what you are entitled to from your card.
Many credit cards also offer cashback or bonus schemes. So long as you use them for spending you would be doing anyway this can be a great saving – sometimes as much as 3% or 4%!
Basically credit cards can be great products if used right. Credit cards should never be used for credit! Use credit cards the smart way.
From the MoneyStand inbox: Come clean about debt
It seems our post in July about Debt and relationships has sparked a few conversations! Here’s another guest post this week from someone who was inspired to write in after reading a post from another. If you want to write us a post and have your opinion on a debt topic heard, get in contact with MoneyStand.
I would never lie about anything to a partner, as I believe that a relationship should be based on honesty. Fortunately, I was brought up with the attitude that debt is something to be avoided. Sadly, with today’s attitude of instant gratification, debt threatens the relationships of many couples, especially if both partners are not jointly responsible for getting into the situation.
A former partner, however, did have a habit of spending in secret, as they knew that I would be upset to know they were wasting such large amounts when we could not afford it. Finding the credit card bills, and knowing that these had to be paid for, caused numerous arguments, as I was concerned that our budget could not cover this expenditure.
Concealing financial problems is understandable, but secrets have a way of emerging, and a partner may well be more upset if the facts are kept from them. Anyone in debt would be well advised to be honest about it; of course the initial response may be anger, but they may find that the partner is more understanding than they expected, and will work with them to find a solution to the problem.
Getting out of debt means talking about debt
The first and most important step in getting out of debt is to admit that you have a problem, and to realise that it is really nothing to be ashamed of. There are thousands of others in the same boat, many of whom are too ashamed to admit to being in debt.
Websites like MoneySavingExpert.com can be invaluable in helping you to face the truth and start to take steps to turn your finances around, as well as having many members in the same position who can support and advise you on what to do next. The very first thing to do is to draw up a statement of your assets, where you detail your income and every single expenditure each month – not just your mortgage and bills, but things like money you put aside to pay your TV licence, or for holidays and treats etc. Once you have a realistic statement you are in a better position to see where you can make savings and see what spare cash you have each month to put towards reducing your debts.
Speaking to advisors at the Citizens Advice Bureau can also be very useful, as is the Consumer Credit Counselling Service (cccs.co.uk), who can give the best advice on bankruptcy, IVAs (Individual Voluntary Arrangement) and Debt Management Plans and help you to contact your creditors to arrangement affordable payment plans if necessary.
It takes time, effort and a whole lot of commitment, but the hard work is well worth it when you can finally see the light at the end of your debt tunnel.
- Remember to TALK about your debt!
Discussing Home Improvement Loans
Home improvement loans do tend to have many advantages and disadvantages. Of course it really depends on what you plan to use the loan on in order to assess whether they are a good way of adding value to your home.
Home improvement television programmes often show how a new kitchen or bathroom can increase the value of a home almost instantly. Home extensions such as adding a conservatory or extra bedrooms can often add a lot of value to a home. They are a particularly good measure if you are planning to sell your home and want to improve its value prior to selling it. If you do you research well and look at similar properties which have had the same work done, this will give you a great indication of whether it is worth taking out a home loan to do the work.
One disadvantage could be that the home loan taken out is a larger amount than is added to the value of your home. This would mean that you are paying interest on money which you may not necessarily make back when selling your home.
Of course taking out a home loan to improve your home, even if you plan not to move is a great idea! It often is cheaper than moving home and means that you can add on extra rooms that you may want from a new home. You do of course have to take into consideration the cost of the loan and whether the benefits out way the risks of borrowing money.
Since the economic downturn however, people are finding it more difficult to get these kinds of loans, as banks are far more hesitant to lend. Although there are many reports coming out that things are looking up, it’s never advisable to get a loan in economic uncertainty – especially in a time when house prices are temperamental so if you are thinking of improving your home to increase it’s sale value, it could end up being a big mistake.
Financial Education
With the recession just starting to take effect many of us will be feeling its force. Losing your job or knowing someone that has, the credit crunch is affecting us all. Most of us have payment protection on our mortgages or loans in case something unexpected happens, but what about those who don’t know about such products and are now defaulting on payments.
Most of us shop around to get the best deals when looking for financial products, we also know what we’re looking for to meet our specific needs i.e. tracker interest rates or fixed rate loans but there are thousands upon thousands of adults who are uneducated when it comes to personal monetary issues.
Lack of education in the financial area can and will lead to large losses of money from the purchasing of unstable and unsuitable financial products. In turn this can lead to even more dramatic effects; those who have got into debt will have to find a financial package to help them recover from that position whether it’s an IVA, bankruptcy or a consolidated loan, choosing the right one that will provide the best solution is a hard task if you don’t have the understanding of what each option offers. You need to know the pros and cons of what they are offering. People need to develop an understanding of economics and finance so they can make the right choices before they get taken advantage of by a loan shark.
Financial education should incorporate lots of different areas to help people manage their money more effectively. The key points being:
• Planning ahead with savings, pensions other investments for the unexpected
• Keeping organised with financial documents and making assessment of advice received
• Knowing whether the credit limit, loan, mortgage is right for them
• Looking for suitable financial options and opportunities
• Engaging confidently in financial situations
Getting children educated about money from a young age either at school, college or at home has massive benefits and sets them up for a happier future with less stress and strain over their finances.
Financial education will enhance and develop people’s understanding of economics and finance and give them a much needed foundation to manage their money better and make knowledgeable choices with financial packages.
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