Bankruptcy is not an automatic conclusion to debt problems in the modern era. There are a number of debt management plan options available that mean avoiding bankruptcy is easier to do and provides a means of getting back in control of family finances over a sensible period of time.
Debt consolidation is just one form of action. The aim with any debt consolidation is to eliminate expensive borrowings, that is debt that carries a high interest rate burden or high monthly payments, by taking out a new loan at lower rates with a longer repayment period. With careful planning it should be possible to create a sensible debt payment plan that allows all existing creditors to be paid off and have just one single monthly payment to make.
Whilst debt consolidation may help some it only really works for those that are creditworthy enough to be able to apply for a new loan. If the credit history is damaged due to missed payments or county court judgments then other forms of debt management plan may have to be considered.
Individual Voluntary Arrangements (IVA’s) were introduced as a hybrid solution that helped most escape bankruptcy. With the help of a licensed insolvency practitioner an IVA creates a legal agreement between the borrower and creditors over which the IVA manager acts as liaison in collecting from the borrower and paying to all creditors. There is a skill involved in negotiating the right terms that are acceptable to all but it does provide protection for the borrower from bankruptcy and losing the family home.
IVA’s are suitable for anyone with debts over £15,000. Below that debt consolidation or an informal debt payment plan is really the only option. As with all debt issues, early action by the borrower can save time and cost since once payments start to be missed lenders will be more reluctant to advance further funds or extend time to pay. So anyone with debt problems should either seek advice before they start to miss payments or contact their lenders and seek their consent to a moratorium or restructured payment plan. Whilst this may be uncomfortable it is a necessary and vital step that has to be taken to get back in control of the family finances.
Bankruptcy should be only the final step in managing debt. There are so many options available before this comes about that only those that have exhausted all other debt repayment plan or debt consolidation options need even contemplate bankruptcy.
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I view debt consolidation as helping someone who is in debt and bankruptcy as the final solution where they gave up. I realize there are times where you can help and there are times when help is no longer a solution. I would like to see the debtor receive help to avoid repeating the same actions that got him/her into debt as part of a program.