An IVA is a legally binding agreement between your creditors and you to repay a just percentage of your debt over a period of time, usually 5 years. After the 5 years, you will have avoided bankruptcy and be debt free.
Not only will you avoid bankruptcy, you may also be able to keep your house. The downside is that the payments will be demanding and your credit rating will be severely damaged for six years. You may also need to re-mortgage your property.
Avoid bankruptcy through a Debt Management Plan
This is an informal arrangement between your creditor(s) and yourself where they will accept reduced repayments allowing you more time to repay and therefore avoid bankruptcy. The danger with this type of solution is that it is not legally binding and there are many unregulated companies arranging this solution simply to profit their business.
A DMP will not formally reduce the amount that you have to repay. Further to this, interest may not be frozen and charges may continue to be added. Defaults will also continue to be added to your credit file. This will seriously affect your credit rating, although it may help you to avoid bankruptcy. As a guide, if you are not using a debt management plan to demonstrate your suitability for an IVA and it takes you longer than 5 years to clear your debt then you may wish to consider an alternative solution.
Using a loan consolidation to avoid bankruptcy
Loan consolidation may help you to avoid bankruptcy. If you have built up an adverse credit history then you may not qualify for an unsecured loan and your only option may be a secured loan. Through loan consolidation you may be able to restructure your finances to reduce your total outgoings. The goal will be to start living within your means, continue to repay your debt and avoid bankruptcy.
Loan consolidation should not be taken lightly. If you do not keep up repayments on your loans then you risk losing your house, regardless of whether the debt is secured or not.
Avoiding through income maximisation
Income maximisation is not a financial product, it is good financial management that may help you to avoid bankruptcy.
Avoiding bankruptcy may be possible by maximising your income and reducing your outgoings to a minimum. This may have the effect of bringing you back within your budget and opening up the number of solutions available to you. Examples include a consolidation loan to reduce your financial repayments, switching service providers to reduce bills and increasing your income.
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