In debt? Alternatives to bankruptcy

Clare Greechan from debt experts Trust Deed Scotland explains some of the best alternatives to bankruptcy for small businesses and individuals.

bankruptcyIf you’re in debt, bankruptcy might seem an appealing prospect. In fact, it should usually be considered a last resort. That’s because, through bankruptcy:

  • Most of your assets will be sold, potentially including your house.
  • You access to credit will be affected.
  • Some professions don’t employ people who are bankrupt.
  • Your credit rating will be affected.
  • Your bankruptcy will be advertised online.

Going bankrupt can have leave a long-lasting impact on your life, finances and career. So what are some of the best alternatives to bankruptcy? Let’s take a look.

For individuals and businesses in the UK

Debt management plan

An informal agreement between you and your creditors to pay off your debts, you can either arrange a debt management plan with your creditors yourself or appoint an authorised debt management company to do it for you (for a fee).

Debt management plans work by paying back an agreed amount every month, based on your financial situation. If you don’t keep up your repayments, your plan may be cancelled. Debt management plans are not legally binding and your creditors do not have to agree to one. These plans are only for unsecured debts – so debts that aren’t guaranteed against a property.

For individuals and businesses in England, Wales and Northern Ireland

Administration orders

Administration orders are good if you have multiple debts because they consolidate your debts into one single lump sum. They are court orders that see you make a single payment each month to the court, not to different creditors.

You’re eligible for an administration order if you have:

  • At least 2 debts.
  • Debt of less than £5,000.
  • At least one county court or high court judgement out against you .

With an administration order, creditors are unable to take further action against you without legal permission.

Individual voluntary arrangements

An individual voluntary arrangement, or IVA, is an agreement to pay back all or part of your debt. You do this by making payments to an insolvency practitioner, who then sends the money to your creditors. IVAs usually last for a period of 5 years – after this time, any outstanding debt is written off.

Debt relief orders

If your debts are £20,000 or less and your disposable income is very small, then a debt relief order (DRO) could be a good option for you. Under a DRO any creditors are unable to recover money from you (unless they get court permission) and, after 12 months, you are usually discharged from your debts.

For individuals and businesses in Scotland

Scottish trust deed

Trust deeds are basically the Scottish version of individual voluntary arrangements (which are explained above). Available to residents of Scotland only, a trust deed is a repayment agreement between you and your creditors through which you transfer some or all of your assets. You would appoint a trustee to manage the process for you and would have no direct contact with your creditors.

Debt arrangement schemes

Backed by the Scottish government, a debt arrangement scheme is designed to help you pay back unsecured debts at manageable intervals, with no threat of legal action. Once in a scheme you are entered into a debt repayment programme, through which you pay back what you owe. The amount you pay is based on your income.

Getting into debt is unfortunate, but it does happen. To people from all walks of life. If you find yourself in debt, don’t bury your head in the sand. Take time to research all your potential options. Depending on your situation, you’ll be able to work out which solution is right for you – whether it’s a trust deed, individual voluntary arrangement, debt management plan or something else.

Clare Greechan of Trust Deed Scotland has been working in the insolvency industry for 18 years.