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IVAs – what are the disadvantages of entering into IVA?

  • Although 70% of your debt might be written off, a large percentage of this is added back in IVA set up fees.
  • IVA fees can range from anywhere between £5000 – £13,000 depending on the amount of debt involved.
  • You may have to pay more to creditors and for much longer than you would do if you became bankrupt.
  • For example, you may have to volunteer to pay regular contributions from your salary over a period longer than three years in order to make the arrangement attractive to creditors.
  • Your home and assets may still be at risk. (There is a review conducted in the fourth year of your IVA that can ask for equity to be released from your property).
  • If the IVA fails, you can still be made bankrupt.
  • All IVAs are recorded in a public register which may make it difficult for you to apply for credit in the future. You are still classified as bankrupt as you are unable to pay your debts as they fall due.
  • Failure to re-mortgage your property in the 4th year always results in you having to remain in the IVA for a 7th year
  • You will probably need to spend more time with an insolvency practitioner working out how to realise your assets than you would spend with a trustee if you became bankrupt. The costs of paying an insolvency practitioner are high.
  • If you are in certain professions, for example, a solicitor, entering an IVA may mean that you can no longer practise, or may practise only subject to certain conditions.
  • A creditors’ meeting cannot approve of an IVA which affects the rights of a secured creditor unless that creditor agrees.
  • IVAs do not end in automatic discharge (unlike most bankruptcies).

Debt Relief Orders – the dos and donts

Before you apply for a debt relief order and during the debt relief order, there are certain things you must not do. These include:

  • hiding, destroying or faking any information, books or documents up to one year before you apply for a DRO and during the length of the DRO
  • failing to tell the Official Receiver of any change in your circumstances that would affect your application for a DRO between applying and the order being granted
  • giving away or selling things of value for less than they are really worth to help you qualify for a DRO.

It is an offence to do any of these things and, if found guilty, the Official Receiver may refuse to grant you a debt relief order.  In more serious cases, you could be prosecuted and fined, sent to prison or both. If you have already been granted a debt relief order, the Official Receiver might apply for a Debt Relief Restriction Order, or take your DRO away.

(If you didn’t intend to defraud anyone or hide information, you will not be found guilty of an offence.)

Also, for the period of the debt relief order, you cannot:

  • get credit over for over £500 without telling the lender you have a debt relief order
  • carry on a business under a different name from the one on which you were granted a debt relief order, without telling everyone involved with your business the name under which you were granted your debt relief order
  • be involved with promoting, managing or setting up a limited company, without getting permission from court.  You also cannot act as a company director without getting permission from court.

If you do not comply with the conditions of the debt relief order, or the Official Receiver believes you have provided wrong information or been dishonest, they can apply for a Debt Relief Restriction Order. If you are given Debt Relief Restriction Order, it means the restrictions on the things that you can do remain in place from two to fifteen years.

(This will not affect your debt relief order which will still end after twelve months and the debts included in the order will still be written off).

However, if you fail to follow the restrictions, you will be committing an offence.  This could lead to a fine or imprisonment.

If you have any queries about things you must not do before and during a debt relief order, ask your authorised debt adviser.

How do I apply for a Debt Relief Order?

Only an approved third party or an intermediary (such as the CAB) can apply online for a debt relief order on your behalf.  Debt relief orders are granted by the Insolvency Service and administered by the Official Receiver. The register is open to the public and your name and address will remain on the register for fifteen months. It might be an idea to google ‘Debt Relief Order’ and check the criteria before getting your hopes up, as they are strict.

There is a cost of £90 to apply for a debt relief order.  This fee must be paid in cash at a Payzone outlet. You can spread the cost over a six month period but the Official Receiver will not consider your application until the £90 fee has been paid in full.

Once you have paid the fee and sent your application, the Official Receiver can make a debt relief order, providing you meet all the conditions.  (It is important to note that it is an offence to give false or misleading information on your application.)

When your debt relief order has been granted, you do not have to pay any of the creditors listed on the order.  Your creditors will be informed about the debt relief order and they cannot take any action against you.

What are the disadvantages of using a Debt Management Company?

  • The fee – often equal to one month’s payment – about £200.
  • Possible one-off deposit payable at the start of the debt management agreement.
  • Possible administration fee of £30 a month for the debt management company to distribute payments to creditors.
  • Fees paid to a debt management company will reduce what you are able to pay to creditors.
  • They cannot always guarantee results. Creditors can still take action against you and don’t have to accept reduced payments or freeze interest.
  • Creditors can refuse to deal with debt management companies.
  • Creditors can consider rescheduled payments as a default and record this on your credit file. Where a first payment is taken as a deposit, account payments usually go into arrears.
  • Where a debt management company advises you not to communicate with creditors but passes correspondence to them, you could find yourself subject to legal action taken against you by your creditors without your knowledge.
  • Debt management companies will often only deal with non-priority debts. If they do accept priority debts, they are likely to consider all debts of equal importance and not pay priority debts any faster.
  • DMCs cannot give financial advice to maximise your income or ensure you are claiming full benefit entitlements. They may not be able to advise you of all options open to you.
  • DMCs may only want to deal with you if you receive an income and own your home so that they can place a charge on your property.
  • If a DMC does not produce a realistic financial statement, you could be expected to make unrealistic payments and could be more likely to default.

If you wish to use a DMC, our associates advisor will go through all of the above with you before you commit to any agreement.

What are the advantages of using a Debt Management Company?

  • Feeling of more control over your debts.
  • Instant phone access to the debt management company – no waiting for an appointment.
  • Anonymity. The debt management company deals with everything over the phone.
  • Convenience – the DMC does the work for you, e.g. drafting letters to creditors.

Do debt management plans work?

DMPs are most generally designed for those who have lower amounts of debt e.g. £7,500 and are in a situation where their finances might improve within a foreseeable period. The problem with these plans is that the monthly payments are usually so low that they never repay the capital and drag on for years at a time. The positive points are that creditors are kept at arms length and often interest is frozen for a period of time, though not permanently.

If your debts are below £15,000 and you meet the criteria, you might want to consider a Debt Relief Order, which is a type of ‘mini bankruptcy’. If you go on the internet and find that you fit the criteria, then this is definitely the better option as your debt is wiped once and for all – your local CAB will arrange the DRO paperwork for you. If your debts are above £15,000 it is unlikely you will ever repay the capital and you might want to call us.

Company Debt

Company Debt

 

If you are at the point where you realise that you need assistance because your company debt is at a level that you need assistance then we can help.

There are only 4 options to consider:

 

1. Do Nothing- Wait and see what happens and remain in survival mode until the outcome

2. Bankruptcy- We always suggest that bankruptcy is considered first as an option opposed to last. The reason is because if you have no assets, live in rented accommodation or own property where there is minimal equity, the bankruptcy is possibly the fastest way of eliminating unmanageable debts. It provides a fresh start t your financial life. We provide a pre bankruptcy counselling service.

3. Individual  Voluntary Arrangement or Company Voluntary arrangement- This can be arranged 2 ways. Either an income based voluntary arrangement or an asset based IVA. The essence of these arrangements is to allow you to make a legal agreement with your creditors whereby you make an offer to your creditors. ( the people and organisations you owe money to) and make them an offer . Providing 75% of the total amount of debt agree to the proposal then the other 25% would have to go with the arrangement.

4. Informal agreement with creditors made on a one to one basis that resembles a commercial debt solutions plan.

 

Don’t be fooled by so called professionals enticing people into certain arrangements. It does happen and if you are unsure about what to do then please don’t rush into just anything because its easy! Remember it takes 5 minutes to sign up and commit to these agreements but its a lot harder to cancel them.

 

 

Bankruptcy UK

Bankruptcy UK