The Best Alternative to Bankruptcy


Written by Jayant Row in Finance
Viewed by 164 readers since 04-14-2009

Bankruptcy is considered a very negative life changing experience. Some people think that bankruptcy can allow you to start with a clean slate, but the experience can stay with you for life and vitiate all your future financial dealings. It can stay on your credit reports for as much as 10 years, and will definitely color the way future lenders look at you, even if you are past the period.

Individual Voluntary Agreement is considered the best solution for people who have serious debt related problems and face the prospect of bankruptcy and the likelihood that all their assets could get attached. IVA is an agreement between the borrower facing likely bankruptcy and the creditor to whom the money is owed. It is completely legal and binding and was passed into law under the Insolvency Act of 1986. Once this agreement is signed the borrower has to decide his payment plans and indicate this to the insolvency practitioner who is allotted the case during the agreement. The loan amount does get reduced.

Once this formal arrangement is made the arrangements made and confirmed in the agreement are binding on both parties, and neither the creditor nor borrower can make any changes to it. The borrower is also safe from any harassment from the creditor as legally he, the creditor, has to abstain from contacting the borrower and can only contact him through the appointed insolvency practitioner. Such practitioners are generally professionals and are therefore impartial. They are to supervise the agreement for its full term. Initially this is for about 5 years. Once this period is over the debtor or borrower is considered debt free even if he has not repaid the loan in full, as long as he has adhered to the terms of the agreement. An IVA agreement normally ensures that 75% of the total debt is repaid.

One main advantage to the debtor or borrower in such an agreement is that he is no danger of losing his property. Lenders can however settle for as much equity as they can get via a remortgage process. But the downside is that once such an agreement is entered into financial institutions are wary of lending to such properties and may opt to give only 50 percent of the value of the property as a mortgage.

Another alternative to bankruptcy is debt consolidation which can help you to eliminate your debt within a few years. It can never figure in your life in future as an IVA would. Please remember that bankruptcy can never free you from child support payments, alimony and unpaid student loans. When you opt for debt consolidation what you are in effect doing is arranging a new loan for yourself to pay off the old debts, at slightly reduced interest rates. It is an alternative to be considered if you have the capacity to repay the new loan, and make sure that you do not add to the payment requirements in future with any further financial burdens.


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