Insolvency | A Guide To Dealing With Insolvency in Todays Climate

Insolvency Alternatives

Insolvencyis fast becoming a catch word in these tough economic times. There a growing number of individuals and companies that have become financially insolvent. While insolvency can eventually lead to bankruptcy—and in turn the loss of your personal assets and any company you own—there are a few measures you can take to repay your debt during this time period, protect your personal assets, and get your finances back on track.  Liberate yourself from debt with one of these insolvency management options:

Insolvency Alternatives – Informal ArrangementsInsolvency occurs when you become financially incapable of paying off your debts

Informal arrangements are a viable option for individuals who are facing short-term financial difficulties. Perhaps you were laid off, used the money for an emergency, or have fallen behind on payments due to illness. If you are likely to regain financial stability soon and/or are able to make smaller payments, you may be able to reach an agreement with your creditors that allows you to temporarily delay or decrease the amount you must pay each month. You may also be able to ask them to freeze your interest during this time period.  Be careful in implementing this approach because informal arrangements are not legally binding contracts. Your creditors may end the agreement at any time and ask you to pay your debt in full. Make sure to give your creditors regular updates on your financial situation and get all agreements in writing.

Insolvency Alternatives – Individual Voluntary Agreements (IVAs)

If you are able to make part of your monthly payments, you may qualify for an IVA. These are formal agreements prepared by licensed insolvency practitioners and are legally binding for both you and your creditors. The practitioner that works on your case will help you calculate how much disposable income you have to make toward payments each month, and list all your personal assets in your IVA. If your IVA is approved, you will make one payment each month which will be distributed amongst all your creditors. At the end of your IVA, you will be eligible to write off any remaining debt you owe. The main disadvantage of IVAs is that if the agreement fails, it may lead to bankruptcy.

Insolvency Alternatives – Administration Orders

You may request an administration order if you owe less than £5,000 to two or more creditors and at least one of these creditors has obtained a court judgement against you. You will be asked to make a monthly payment to the court, which will take a small fee from that payment (up to 10%) and distribute the rest of your money amongst your creditors. The main advantage of an administration order is that your creditors cannot take any further action against you while the order is in place. However, if you miss a payment, the court may void the order and your creditors will once again be able to pursue you.

Insolvency Alternatives – Debt Relief Orders (DROs)

DROs are reserved for individuals in the direst circumstances: those who have assets totalling less than £300, a surplus income of £50 or less per month, and no hope of improved financial prospects. Your debt must not exceed a cumulative total of £15,000. If you are approved for a DRO, you will pay a one-time fee of £90 and be absolved of your debt after one year. However, you may still be required to pay fines you owe, as well as student, budgeting, or crisis loans.

Conclusion of Insolvency

Financial insolvency comes with some serious consequences. In most cases, your financial troubles will be entered into public record, which could negatively impact your employment prospects and your credit rating even after your debt is erased. Make sure you’re in good hands if you are considering insolvency.

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