Avoiding Debt Disaster

Although the number of personal insolvencies fell in 2007, it is predicted that the number in 2008 will rise as a result of over-borrowing by consumers.  It is estimated that, for over 80% of those people made bankrupt, credit card spending, together with higher mortgage interest rates, has been the biggest single cause of their difficulties.

Steve Smith, head of Relief4Debt says, “One of my most recent clients had over £80,000 of debt, but nearly £20,000 of that was interest. Once you fall behind with payments - the costs, charges and interest just keep mounting. A spending spree in 2007 can cost you your home in 2008".

Fortunately changes to the bankruptcy law have relaxed some of the rules and processes. Most bankrupts can expect to receive their discharge within 12 months or less. During that time, they will not be able to take credit without disclosing their bankruptcy and most will face restrictions on their bank accounts. For many, however, that is a small price to pay for a chance to straighten out their financial affairs without  the stress of monthly credit card statements, phone-calls and threatening letters. 

For the home-owner bankruptcy is a lot less attractive. Even where there are young children at home, a Trustee in bankruptcy has the right to demand the sale of a bankrupt's home after just one year. 

Where total unsecured debts are under £15,000, solving a short-term cash-flow problem may be best resolved using a debt management plan. However, for anyone with extensive debts, these plans can run for years, keeping a person locked in a mean cycle of poverty doing little more than pay the interest on debts that are years old. 

Steve Smith says “Relief4Debt has been specially created for the homeowner who has more debt than they can afford to service, but some value in their property which can be used to settle all outstanding unsecured debt using an Individual Voluntary Arrangement (IVA). In exchange for a clear commitment to raise funds by way of a mortgage, card providers and banks can be persuaded to wipe off much of the debts they are owed. The reason is simple. Lump sum IVAs are generally less costly than bankruptcy and offer an earlier settlement. Another recent client settled out on a debt reduction of 50%. Relief, indeed".

“No-one thinks it right for a person to borrow money they cannot repay, but the solution is not to make a person pay for the rest of their life. That is worse than a prison sentence. Individual Voluntary Arrangements allow a person another chance.”

Use our Self-Assessment Debt Test for an immediate indication of whether an IVA is a viable option for you.