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The use of credit and therefore indebtedness, are an indisputable part of modern life.

 

We are all used to spreading the cost of everything from our run-of-the mill household bills to larger purchases of non-essential items either by using our credit cards, taking out a loan or paying in monthly instalments. The whole ethos of making payments via cards, whether they are debit or credit cards, has made the business of essential and non-essential consumerism easy and accessible to all.

 

With a recent global recession and the basic cost of living rising week on week, not to mention an imminent rise in VAT, it is not difficult to see how multiple repayments that were once manageable suddenly become a struggle. This could be for a number of reasons: a sudden loss of household income, a financial emergency involving expensive repairs, or even simply having lost track of quite how much outgoings have risen  can be enough to topple the delicate balance of household finances. Unfortunately the temptation is to try and temporarily get over the problem by ignoring it or borrowing even more and debt problems continue.

 

Most creditors, be they a bank, utility company, a credit card or loan company, will actually listen and try to help with debt management problems if they are contacted in good time and given the chance to do so. There may be payment holiday options to give a customer a brief period of non-payment to get back on their feet, or interest-only payment options allowing a temporary drop in monthly repayments.

 

Of course, it should be remembered that any such option will mean the debt increasing slightly in real terms as more interest will be payable in the long run. Some companies may require payments in advance as an insurance policy against there being any further payment difficulties in the future. Having a debt management plan can make sure that companies know that you are working on the problem and can see how you are going to help yourself out of debt.

 

It is very easy to give advice urging someone to get in touch with all their creditors and talk things through. In reality this is daunting. Someone who is already worried about their situation and possibly not understanding all the options available to them, coupled with not having the experience to negotiate the best solution, will not be best armed to deal with debt management problems.

 

Sadly by the time some people get to the point of trying to deal with debt problems it is already too late and arrears have already built up. Threats of possible recovery action may be looming. In some cases, County Court Judgements may already have been awarded against the debtor and they may feel bankruptcy is the only answer. This is the time to deal with the problem head on.

 

Bankruptcy has far-reaching and serious consequences and is not the quick fix for unmanageable debt some may have been led to believe. It is not a simple way to wipe the debt slate clean and life may well never be the same afterwards. Anyone thinking of filing for bankruptcy should not be considering anything less than losing everything they have and also living with the consequences for as long as fifteen years. There are alternatives which, although still serious measures, are a better solution to a known end.

 

Thankfully there are companies and organisations of qualified, knowledgeable people who can help an individual with debt problems. These service providers can take some of the anxiety out of the situation and talk through things with a debtor in a calm and simple manner setting out all the options. They will discuss what a debtor can really afford to pay and then discuss the options available.

 

Whilst it is true bankruptcy may be the only option for some, it is more likely that an Individual Voluntary Agreement, or IVA, will be more suitable, avoiding that very last resort. An IVA is an agreement that allows a debtor to make arrangements to pay back amounts they can realistically afford each month. Insolvency practitioners really come into their own when a debtor decides that an IVA is for them. Once they have established the means available, they will go and negotiate with the creditors on the debtor's behalf. Just knowing that it is not necessary to do this personally can instantly make debt management problems more manageable.

 

An IVA is not a quick fix, but a long term, legally binding arrangement that should only be considered by those genuinely in debt crisis, i.e. not able to meet even their minimum monthly repayments. If an IVA is the only choice, then companies assisting debtors with debt management problems such as Payplan can help things run smoothly. They will contact creditors informing them that they are now the debtor's legal representative and will lay out from previous discussions what a debtor can repay to each creditor. Providing 75% of the creditors agree - and they will only do so if they believe they will get more money from the debtor this way than by making them bankrupt -  then a legally binding, fixed-term arrangement will be put into place. A monthly payment will commence and, provided this is kept up, the debtor should have no further problems or contact from their creditors. At the end of the fixed term (typically five years), any remaining balances will be written off.

 

As with all debt solutions, there are pros and cons. The fact that an IVA is a private arrangement is attractive as it means no-one except the debtor needs to know about it. An IVA prevents creditors from taking any further action against a debtor. The knowledge that debts are being paid back and will be completely settled at the end of the arrangement by means of write-off can be a great comfort.

 

However, it must be remembered that an IVA will sit on a debtor's credit history and possibly make credit in the future hard to come by. Although assets such as a debtor's home are “safe” under an IVA as opposed to bankruptcy, it may be required that equity be released towards the end of the arrangement to go towards outstanding debts. Should circumstances change and a debtor receives an inheritance or other windfall, it would be expected that this be used to reduce debts. Similarly if circumstances change for the worse and a debtor cannot continue repayments under an IVA, bankruptcy will still follow and debt management problems will remain.

 

Most debt does have a solution if the debtor seeks the help they need.