Sunday 12 July 2009

What if your creditors won't accept your offer....

If your creditors won't accept your proposals, contact one of the following nationally recognised debt counselling services:
  • Consumer Credit Counselling Service
  • The Citizens Advice Bureau

These companies are free of charge and will offer expert, unbiased assistance to help you with your financial problems. They may even contact your creditors on your behalf to arrange a reduced repayment plan.

If you are still unable to resolve your situation and have debts that are getting out of control, there are still options available to you. You could consider an IVA or Bankruptcy.

What is an IVA?

An IVA is a proposal to repay a portion of your debt, and is made to your creditors through an Insolvency Practitioner. The proposed payment will be less than the full amount of the debt owed, but if the IVA is agreed your creditors are legally bound to accept this as full and final settlement of their claim. An IVA will typically involve a monthly payment, a lump sum or a combination of the two, and can take account of irregular income such as overtime or bonuses.

How does an IVA work?

The process begins with a review of your financial situation with a debt advisor from the IVA company that is representing you. If the advisor believes that an IVA is right for you, a formal written proposal will be drafted. Your creditors will vote on this proposal, and as long as 75% (by value) of the responding creditors agree, the proposal becomes legally binding. You must then maintain your monthly payments for the length of time agreed (normally 5 years), but once these and any other terms of your arrangement have been fulfilled you will be debt-free, and any outstanding balance will be written off.

What is Bankruptcy?

Bankruptcy is a way of dealing with debts that you are unable to repay. It can free you from overwhelming debt, allowing you to make a fresh start, and ensure that your assets are shared fairly among your creditors.

How does Bankruptcy work?

The process begins with a petition which details your income, outgoings, debts and assets. Your petition will be examined by the local County Court, and the court will decide whether to make a Bankruptcy Order. You may be interviewed by the Official Receiver, a civil servant who will deal with the creditors and decide what to do with assets such as vehicles and property. Your assets are usually sold: the proceeds of the sale are used to pay your creditors, and any remaining shortfall will be written off. You will be subject to certain restrictions during and after the Bankruptcy proceedings.

How much does Bankruptcy cost?

Bankruptcy costs £495, including a court fee of £150 and the Official Receiver’s fee of £345. This fee is payable when you take your petition to the court.

The pros and cons: IVA or Bankruptcy?

If you have unsecured debts of more than £12,000, and can afford a monthly payment of at least £180, an IVA can help you to be debt-free within 5 years. All interest and late payment charges will be frozen, and telephone calls and payment demands from your creditors will stop.

An IVA requires you to repay a significant amount of your debt, whereas bankruptcy requires you to repay a minimum amount (or nothing at all), and an IVA will last longer than bankruptcy (typically 5 years compared to 3). However, an IVA has less impact on your credit rating than bankruptcy, your name will not appear in the local papers, and there will be no adverse consequences for your job, regardless of your professional position.

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