Alternatives to Bankruptcy

For many people struggling with unaffordable debt, bankruptcy can seem like the only – and often dreaded – way out.

However, this isn’t the case. There are actually many options to deal with your financial problems, all of which offer their own set of unique advantages.

So, what are these alternatives to bankruptcy?

In this guide, we’ll explore the different options available, when they’re most appropriate, and how you can get the help you need.

How Does Bankruptcy Actually Work?

Despite the stigma, bankruptcy can be one of the best ways for you to get back to a debt-free life.

You declare bankruptcy by filing a £680 online form. Your assets – such as your property and vehicle – are then seized so that they can be sold to repay your creditors. After 12 months, any remaining debts are written off.

For many, bankruptcy is actually a solid choice. Your debt is dealt with quickly and you can soon start to rebuild.

However, if you’ve got a property you need to protect or you can’t afford the initial application fee, it might not seem like much of an option.

So, what else is available for you to consider?

Individual Voluntary Arrangement (IVA)

An Individual Voluntary Arrangement is an alternative to bankruptcy that allows you to deal with your debts without selling your hard-earned assets.

It functions as a repayment plan, offering many benefits to debtors:

Stretches out repayments over 5-6 years
Freezes interest and charges on debts
Protects your house and vehicle from sale
Outstanding debts are written off at the end of the arrangement

It’s the ideal solution if you have property you need to keep a hold of.

You’ll need the backing of 75% of your creditors – by value – to enter into an IVA. Generally, your creditors will need to be convinced that they’ll get a better outcome in an IVA than they would in a bankruptcy.

This can seem daunting, but don’t worry – our team can help you sculpt a proposal that is affordable for you and attractive for your creditors.

Debt Relief Order (DRO)

Some debtors don’t have the money to apply for bankruptcy or an IVA, so Debt Relief Orders were created to help make insolvency solutions more accessible to anyone who might need them.

Nicknamed “bankruptcy lite,” DROs are designed for people with low incomes and no assets:

Low application cost
Keep your personal household belongings
May be able to keep your vehicle
Debts are written off after 12 months

Debt Relief Orders mostly function just like bankruptcy. The key difference is the price; applying for bankruptcy costs £680 while applying for a DRO costs just £90.

To enter into a DRO, you must have no more than £75 of disposable income per month and no more than £2000 in assets. Your total debts must be below £50,000.

They’re not for everyone, but DROs can be a real lifeline for those trapped with suffocating debts.

Debt Management Plan (DMP)

A Debt Management Plan is an alternative to more formal insolvency solutions like bankruptcy. It functions as an informal repayment plan, which doesn’t carry the personal restrictions or cost of other procedures.

It’s a good option if your debt is affordable, but you just need a little more time to pay:

Can stretch out repayments for up to 10 years
Instalments are affordable
Potential to freeze interest and charges on debts
No affect on your assets

A DMP can act as a show of good faith to your creditor, assuring them of your intentions to repay. If they’re confident in you, they’ll generally agree to stop any debt recovery efforts.

This means a DMP can protect your assets.

However, a DMP is not legally binding—your creditors are free to terminate the agreement at any time, even if you keep up with repayments.

How Do I Know Which Solution Is Right for Me?

There are many alternatives to bankruptcy, but deciding which one is right for you can be tricky. The answer varies on a case-by-case basis, but you can get an idea by thinking about the general usage of each solution.

If you’re facing a lot of debt but want to keep your property, an Individual Voluntary Arrangement is probably the most fitting choice for you.

Or, if you’re facing smaller debts but need a bit of help getting on top of them, a Debt Management Plan is likely your best bet.

Finally, if you need insolvency support but can’t afford to declare bankruptcy, you should start thinking about a Debt Relief Order.

Remember, it’s important not to rush into anything. Doing so without the proper guidance can be a very costly mistake, making your situation worse.

Speak to an Expert

If you’re struggling with unaffordable debt, speak to an insolvency practitioner.

Our expert team can assess your situation and lead you to the solution that’s right for you, allowing you to move on to your debt-free future.

Get in touch to book a free, no-obligation consultation today.