should I go bankrupt rather then get an IVA?

[zoe_66]

If my debts total 41,000 and total outgoings for them are around 832.60 a month, with interest rising, should I go bankrupt rather then get an IVA? I am employed and earn 37,000 but still have outgoings of around 1,400 a month, my salary after tax is 2,240 a month, which leaves me stuck with paying my debts and never clearing them. Would I be allowed to go bankrupt? would I be eligable? and therefore how much would the payment schedule be for three years? I would rather do the bankrupcy as it is cleared in a year- and as I am 35, I would like my debt cleared as soon as possible, in case I do want to start a family, when I would find the debt impossible to deal with. What do you suggest?

Thanks
Zoe

[MelanieGiles]

Hi zoe and welcome to the forum

So you have approximately £840 available per month to service debts of £41k. I do not think that an IVA is a sensible route for you, as you could pay your debts in full in less than 5 years if your creditors were to agree to freeze the ongoing interest - which they might!

You could apply for bankruptcy, but in all honesty if I were the judge I would tell you to at least try to come to some arrangement with your creditors beforehand and demonstrate that this had not been successful - with the result that your finances are getting worse. Not saying that this would happen, but it might!

Bankruptcy is really there as a sanctuary for people who genuinely cannot pay their debts for good reasons, and is not an easy option to get out of paying your debts as quickly as you can. I suggest some careful budgeting over the next couple of years could make inroads into those debts - but do note that you have other priorities.

Only you can really make your mind up, but you are not really insolvent as the contractual repayments are in line with your disposable income.

[ianmillington]

If I read you correctly, whilst it at first sight appears that your debts equate to 50x the amount you can afford, the reality is that you are merely covering the interest?

Clearly as Melanie has pointed out, an interest freeze is the key. If you can get all the creditors (how many of them by the way?) to freeze interest in the long term then you will repay the debt in that period of course. It may be a good idea to ask the Citizens Advice Bureau to help you with this if you have a number of creditors. They will write out to your creditors on your behalf with your offer.

That idea sounds great in principle. However, you may get a fragmented response. Some may agree to freeze interest long term, some may only agree in the short term. Others may refuse point blank. You need to go through this process. If it falls apart because creditors won't play ball (the more you have the greater the risk of this) you will probably then need a more formal solution. That will be either bankruptcy or an IVA (assuming you have no property to remortgage - you haven't said).

Bankruptcy - Yes, you are discharged in a year but that isn't the end of it necessarily. As you have identified there is a 3 year income payments order and also the possibility of a Bankruptcy Restriction Order if the Official Receiver feels that a debtor has been culpable or irresponsible. For example, you will be required to account for the money you borrowed. I note your employer pays you £37k so presumably you occupy a responsible position. What do you do for a living? Would bankruptcy affect this?

Hope this helps.

Ian

[zoe_66]

[quote]Originally posted by zoe_66

If my debts total 41,000 and total outgoings for them are around 832.60 a month, with interest rising, should I go bankrupt rather then get an IVA? I am employed and earn 37,000 but still have outgoings of around 1,400 a month, my salary after tax is 2,240 a month, which leaves me stuck with paying my debts and never clearing them. Would I be allowed to go bankrupt? would I be eligable? and therefore how much would the payment schedule be for three years? I would rather do the bankrupcy as it is cleared in a year- and as I am 35, I would like my debt cleared as soon as possible, in case I do want to start a family, when I would find the debt impossible to deal with. What do you suggest?

Thanks
Zoe


Yes, I don't own a house I am in rented accomodation. I work in online advertising and don't think that my job would be effected. I agree- that my income enables me not to miss payments- but as you say, I am only paying off the interest and I am totally stuck in that position- literally living to pay my interest- with no hope of getting the debt down, saving or anything- which is extremly stressful. I have 6 credit cards and 6 loans- so it is fragmented too. My concern is to get rid of the debt- not to be irresponsible, I have never missed a payment- and have been juggerling this debt for years and have never had a bad credit file before. I think the best would be to ask to freeze interest- but that does sound precarious as they could just say no or change that again when ever they like- leaving me stuck in debt.

Zoe

[ianmillington]

Hi Zoe

The responsible approach would be to seek an interest freeze first. Can you list your creditors please with amounts? That may help us have an idea as to whether the wheel is likely to fall off an informal arrangement. If it were to do so, then that would be grounds for the creditors to support your application for an IVA or do a bankruptcy.

Check your contract of employment and see whether it is affected by bankruptcy/IVA or whether you have to disclose it.

Both freeze interest. Both prevent further action by unsecured creditors. Both stay on your credit file for 6 years. So far as the future is concerned, as I am not a mortgage lender I would be unable to say whether you would be a better credit risk 4 years into an IVA with which you are complying or 3 years after a bankruptcy. If during the course of an IVA you and your partner wanted to buy a house then a mortgage is do-able.

Because there is an element of "bargain" you will clearly pay more each month in an IVA. It's 3 years instead of 5. So there are pros and cons in each one. For a document listing them in an unbiased fashion you can get hold of me via a freefone number and I'll e-mail you a copy if you like.

Hope this helps

Ian

[MelanieGiles]

Zoe

Unless I am really missing the point here, there is a disposable income of £840 per month and debts of only £41,000. If you were to pay £840 per month for five years, this would equate to over £50k and in today's climate an IVA is unlikely to be acceptable.

Only yesterday we were told by a major lender that they will not consider voting in favour of an IVA if the debts could be repaid via a DMP in less than 7 years.

Whilst I do accept the point about interest freeze, and there is no guarantee that creditors will accept this, I still think that you should try. If the creditors say no then you have better grounds for applying for bankruptcy, if you feel that this is the appropriate option.

[ianmillington]

I entirely agree that an informal scheme is the first and best option here. The others have consequences. May I reiterate that Zoe should only consider the alternatives if the informal approach fails.

Ian

[zoe_66]

No, My essential outgoings ( as worked out by a agency recommended by the CAB) are £1,711 my monthly payments to all my creditors- (minimum payment only) adds up to £832, leaving me in the red each month by around £303, in further debt. Yes, they have tried to work out a debt plan payment- for the 12 creditors- so what concerns me is that not all will agree to freezing interest, and I may get court judgements etc sent to me, which could go on for the next five years. I am considering what the best option for me to do is, it is all extremley stressful- and no, I have no disposible income at all, I am still researching, thanks for your help.

Zoe

[zoe_66]

I dont think I have been clear- I have NO disposible income, my outgoings for debts - to pay the minimum is £832, my essentail outgoings as worked out for me with the help of an agency recommended by the CAB is 1,711, leaving me £ 303 in the red- with minus disposible!!. My total debts are 48,750, 6 of these are loans and 6 credit cards. I am worried that not all will agree to a plan and be threatening with court judgements for the next few years

[Jo Rolland]

So your surplus income is £529 not £840?

If this is the case an IVA may well work for you.

[ianmillington]

Okay

On your figures, the debts would take 6.5 years to repay, assuming it was at no cost and with no interest at all, which is probably not going to happen. Are you able to say how the essential outgoings are calculated?

Ian

Just to correct an earlier posting of mine - payments are for 3 years in a bankruptcy and 5 years in an IVA

[Jo Rolland]

In an IVA you would be offering a dividend of 45-50 pence in the £.

If you were to contact your creditors and arrange to make reduced payments based on your current surplus and with them all agreeing to freeze interest and charges you would repay the debt over a period of 7.7 years.

[ianmillington]

You are right about the length of time Jo. However, in my defence, in her original post Zoe said she owes £41k which would take 6.5 years.

Ian

[zoe_66]

I have been refused an IVA because the majority of my debt is with Northern Rock, who I am told by two agenies ( Pay Plan and Capitalise) will not accept an IVA. So it seems a debt management plan or bankrupcy is the alternative. Yes, the desposible income after essential outgoings- which was calculated by payplan for me, after going through with me, item by item what I would be allowed to live on, my rent, council tax etc- which leaves around 529 after essentials- giving me a short fall of around 300 pounds. So the payment plan could be precarious- if not all 12 creditors agree to freeze interst and may issue me with county court judgements I have been told- also because it would be an informal agreement, at any time they could demand full payment- or refuse to freeze interest- of issue me a court judgement- so that does seem a scary course of action. Sorry for my earlier figure of my total debt, which is in fact 48k and not 41k. Sorry for that confusion.

[ianmillington]

Hi Zoe

The perception is that Northern Rock tend to refuse IVAs but that really is when they have their "Together" Mortgage product i.e a mortgage running alongside a 25 year unsecure loan. What type of debt is the NR debt, how long has it got to run and how much of the £48k is it please?

Thanks

Ian