We get many e-mails from people who are considering Bankruptcy but cannot afford the Bankruptcy fee. It’s actually quite ironic that to declare yourself bankrupt costs a lot of money! Many of the people who should go bankrupt are actually too poor to do so.

Bankruptcy can be a way out for those who have racked up debts and cannot afford to pay them any longer. However, in reality it doesn’t seem to be helping the most vulnerable people as if you don’t have the £700 fee, you can’t declare yourself bankrupt.

Many people have spent years fighting her debt nightmare because they cant afford to go bankrupt. Research from the Citizens Advice Bureau indicates that nearly 50% of people for whom bankruptcy is the only option, do not have the money to take advantage of it.

Experts say these people suffer immense stress and depression, are left at the mercy of unscrupulous debt collectors and often have no options to remedy their debt.

It’s true that many see bankruptcy as an easy option. You know, the type of people who have lived lavish lifestyles, however it is the people who have been pushed into a debt spiral by the current problems in the UK who are struggling with debts and are feeling like they have no way out.

Many of these people have suddenly lost their jobs and are being left with no way to pay their mortgage or bills. Some of the people who are unable to find new jobs end up paying their living costs on their credit cards. This is where the debt nightmare can begin.

So surely there are other options to Bankruptcy…Right? Well, if you cannot afford to go bankrupt, there are other options such as a debt management plan or an IVA. You may also consider a Debt Relief Order if you don’t own your property and have less than 15k worth of debt.

In reality, thousands of people every year are too poor to go bankrupt. The situation has actually got worse in recent years as bankruptcy fees have risen sharply. Debt relief orders (DRO’s) have helped some people, but they don’t help people with debts over £15,000.

In light of the current financial crisis, many debt experts have advised that its time to review the DRO limit. It was set at £15,000 eight years ago and many feel its time to put it up to £20,000 or even £25,000.

The Government in the UK needs to improve the system for waiving bankruptcy fees for those who really need it so that more people can be helped.

With new figures just around the corner, the figures for UK bankruptcies are set to fall due to the fact that people cannot afford the fees. On the flip side of the coin, IVA’s and DRO’s are expected to increase.

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We always get emails asking what debt solutions are available if you are facing financial trouble.  On occasions we will recommend the ones we think will be best for you.  However it’s important that you know all the possible debt solutions so you can make an informed choice.

Taking that into account, we are going to look at all the options available to you when you are in debt.  We will summarise all of the possible debt solutions, to enable you to make an informed choice

We will look into what you can do to freeze interest, or the more formal Government backed debt solutions.  Which debt solution you choose should depend on how much debt you are in, if you own your home and how money you have spare after all of your living costs.

A – An Informal Arrangement with your creditors

If you have got yourself into temporary debt and missed a payment or two, the first step you should take is to contact your creditors and explain your situation.  Try to offer a repayment arrangement that you can realistically afford and request that they freeze interest on your debt.  This is always the first step you should take however please be aware that some creditors are more obliging than others to helping someone in this situation.
B. Debt Management Plan

If your debt goes beyond missing a payment or two, the next logical step is to get a 3rd party to try and negotiate a Debt Management Plan with your creditors.  A good debt management company  will act as a go-between and will contact all of your lenders and put together a repayment strategy. Once the debt management plan is ready and has been accepted by your lenders, you will pay the debt management firm a monthly payment.  The Debt Management firm will then divide this payment to your creditors.

C. Debt Relief Orders

Debt relief orders have come into existence within the last few years.  A debt relief order, and is a form of insolvency.  These orders are for people that have hardly any disposable income and very little assets.  A debt relief order will fast-track through the court system with no appearance at court required.  Your debts should be lower than 15k if you are going to be eligible for a DRO.
D. Individual Voluntary Arrangement’s (IVA’s)

An IVA is different to a Debt management plan in that it is a formal contract between you and your lenders.  In this contract you will detail your current financial situation and an offer of payment on you can afford, each month,  These payments are normally paid every month over 5 – 6 years. On rare occasions, a one off lump sum payment can be negotiated to clear your debts.

If the IVA is accepted, it becomes a legally binding agreement which means that lenders cannot contact you to try and increase your payments or they cannot add further interest.  Once an IVA has reached its conclusion, the total debt is legally discharged, meaning you own nothing more.

E. Bankruptcy

Bankruptcy in the UK is a lawful way of discharging your unsecured debts and it works for most people who have debt they simply cannot pay back.  Many people in the UK think that Bankruptcy is an easy option in order to clear their debts but nothing could be further form the truth.

Every bankruptcy case that is assessed in the UK is thoroughly reviewed and your financial history prior to going bankrupt is investigated.  If you feel you can stack up on the credit card spending, knowing that you have no way of paying it back and then declaring yourself bankrupt, you can think again.  

If your Bankruptcy is granted, you will be assessed to see if you can make a payment for a period of three years from the date of your bankruptcy order.

There is also the possibility that the official receiver could enforce a bankruptcy restriction order.  A bankruptcy restriction order means that you will not be released from bankruptcy for many years.  The official receiver can enforce this if you were found to be reckless with your spending before you applied for Bankruptcy.

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