Why Bankruptcy is not all bad

Why Bankruptcy is Not All Bad.
I have been in the insolvency business for all my working life, firstly as a solicitor for 15 years, and then as a manager in a debt solutions company. I now run my own debt solutions business offering real solutions to those in debt. My motives are not driven by a BAM (best advice model) which has been engineered not to provide best advice but actually to drive the decision to the solution which provides the greatest financial reward for the solution provider, but for a genuine desire to ensure the correct solution is undertaken.
I have noticed a concerted drift by providers of solutions to push people to a debt management solution or an IVA . The reasons are obvious if one thinks about it. For a DM solution the provider may take the first two month’s contributions, on average £250 per month and then make a management charge of 17.5% per month. For this the company will take responsibility for liaising with creditors, and attempting to get them to accept reduced payments over an extended period of time, whilst also freezing interest. This is invariably successful, and for some people it is an appropriate solution where the debts can be dealt with in a short period of time. However, many debt management plans envisage payments being made for 10 -12 years to clear balances. The problem always however with this solution is that it relies on the goodwill of each creditor who may at any stage take or continue with action against the debtor.
For the IVA solution, the provider will ascertain what the debtor can afford and the IP’s fees will come out of contributions prior to these contributions being paid across to the creditors. Fees can routinely be £2500 for setting up the arrangement and around £5000 for monitoring it for the next five years. This is very remunerative for the IVA provider if the arrangement goes the full term. Many will say that this is irrelevant as the debtor is paying what they can afford and the creditors are happy to agree these fees to ensure compliance with the arrangement. I have a different view. During my time in this industry I saw a gradual creep in the amount that creditors demanded from debtors by way of monthly contributions before they would agree to an arrangement. The result of this was that many people desperate for any debt relief would agree to make monthly contributions into an IVA that were simply going to be unsustainable. One thing that must be remembered about an IVA is that unless all 60 payments are made, the IVA is not deemed to have completed, and if it fails you will still be in the position of owing creditors whatever was due, less those payments they did receive. The “rewards” of up to 75% of the debt written off only accrue when the arrangement has been completed, but on current figures only 60% ever complete and these figures will undoubtedly get worse.
My view is that whilst the above are viable solutions for some people on some occasions, many more people should consider bankruptcy as a viable alternative.
The attractive features of bankruptcy are that all qualifying debts are written off the moment the bankruptcy order is made. The fees are reasonable, being only £495 per person. Your affairs are taken over by the Official Receiver, so he will deal with all creditor claims. You will generally be discharged from your bankruptcy after only a year and maybe even before that if the affairs are very simple.
It is said by critics that bankruptcy has a stigma, and that the bankruptcy will be advertised in a local paper. That is true but I always say to my clients to think and see if they can recall ever seeing those adverts. None can! Others say that the home will be lost. If no equity exists in the house then it can be transferred back for as little as £250. If there is equity, the Official Receiver will require this to be taken out and paid to him. For many people of course who do not own a property, there will be no property consequences of a bankruptcy.
Finally as a bankrupt a person will not be able to act as a company director, and some professions such as the police and the armed forces take a dim view of bankruptcy, but for the vast majority of people, bankruptcy will have no other effect than to liberate them immediately from debt.

Steve Thatcher