Filing for bankruptcy really is the last resort when it comes to managing your debt. There are plenty of other options before bankruptcy. It all depends on how serious your debt levels are.
If you are struggling to deal with the debts that you owe, you might benefit from seeking advice from a debt management company. These companies will assess the level of your debt, and look in detail at your household budget – what money you have coming in and what expenses you have.
The first step that most debt management companies suggest is a debt management plan (DMP), which is a way of coordinating your debt repayment. Together with you, the debt management company decides a monthly payment for outstanding debts that is achievable after your expenses, and you pay this as a single payment to the debt management company. It is then redistributed to your various creditors. A DMP makes life simpler for you as there is only one monthly payment and the creditors should stop chasing you directly.
With a larger amount of debt you may consider a debt consolidation loan. However, there is a psychological danger that if you have all your debts cleared by taking a bigger loan out to cover them, you may then feel free to spend again – without clearing that new debt first. You need to have strong self-discipline to avoid doing this and ending up in a worse situation than before you took out the debt consolidation loan.
If you owe more than £10,000 to three creditors or more, it may be that you are eligible for an IVA (Individual Voluntary Arrangement). This is a legal agreement between you and your creditors for a repayment schedule, set up by an intermediary such as a debt management company. Creditors aren’t obliged to agree to an IVA, but most do as it’s the best way for them to secure some repayment from their debtors. However, you should be aware that an IVA remains on your credit history for 6 years and that if you fail to make IVA repayments you will probably end up being declared bankrupt anyway.
Debt management companies can help people who are not coping with paying off their debt themselves, but you should be aware that there will usually be a fee to pay.