A few days ago the Insolvency Service announced that there were 15,389 bankruptcies in England and Wales in the first quarter of 2006 — an increase of 12.5% on the previous quarter and a rise of 51.2% over the same period last year.
Not surprisingly, the credit industry is rather worried. A survey conducted for Credit Today, the independent magazine for the credit industry, says there is a 'a high degree of concern' in the credit industry about the current level of bankruptcies and IVAs in the UK. More than three quarters (81%) of the respondents, all of whom work in organisations in the finance and credit sectors, identified the issue as a problem, with a similar number believing difficulties will increase.
Make no bones about it, bankruptcy is not an easy option for most people. If you've got assets, you'll generally have to give them up and even after you've been discharged, you're very likely to be refused credit for some years or else face higher interest rates because you'll be considered a high-risk customer.
So, for people who are struggling with debts, what steps can you take to avoid it? Consider the following:
Tackle your creditors yourself
If you're having trouble meeting your monthly repayments, then write to your creditors asking them to freeze the interest rate and allow you reduce your payments for the time being. Be open and honest about your circumstances and include a Statement of Affairs to show your income and outgoings.
Opt for an IVA
I hesitate to suggest this because opting for an Individual Voluntary Arrangement doesn't always work out for many people. An IVA is essentially a legal debt management plan which is organised and supervised by a licensed Insolvency Practitioner. The creditors stop knocking at your door and it enables you to have a great deal more control over how your assets are dealt with than you would with bankruptcy. However, IVAs cost a fair amount of money to implement — money that you could have used to pay off your debts.
Sell everything
One of the things people usually worry about the most is losing their home through bankruptcy. This doesn't always happen but rather than risk it, you'd be better off retaining control of the situation and selling your home yourself to use any surplus equity to pay off the debts. There's nothing wrong with renting, you know, and you can always get back on the housing ladder at a later date when you've sorted yourself out. At least you won't have a bad credit record and you won't have had control taken away from you.
The trick is to try and sort out debt problems before it's too late. Too many people hide their heads in the sand instead of confronting their debt problems at an early stage. If you're getting scared to open your post in the mornings, then it's probably time to stop being an ostrich!
Motley Fool
