January has the unfortunate association of being the gloomiest month of the year when the hangovers of Christmas excesses catch up.  It is the time when the credit card bills roll in following the seasonal purchases.  It is a month where many sole or partnership traders meet the reality of reduced activity following the December quarter day rent being due and VAT liabilities due for payment.

We are all constantly bombarded by advertisements in newspapers, on television and at your local petrol station to sort your debt and even text messages saying that there is legislation to enable you to write off your debts. 

Faced with the bewildering range of options it is unfortunately the experience that many people simply do not face up to the position they find themselves in.  Doing so is the single most important thing which can be done.  Make a list of who is owed monies and when those are due, this is the first step to tackling the issues.  There are a number of avenues available but before any professional advisor is able to assist, those who owe money must be able to present accurate information.  Understandably most people wish to avoid bankruptcy, it should be seen as a last resort, but there are occasions where party’s are made bankrupt who need not have done so, solutions being available but where those owing the money have simply not faced up to the pressures being bought upon them and find that Court orders are made simply because they have not tackled their problems. 

Many of the advertisements which appear in relation to debt cases are by Debt Management Companies.  Care must be taken when approaching any of these organisations as they are unregulated and do take an upfront fee out of any payment before distributing monies to creditors.  Choose wisely, a Debt Management Company worth its salt will seek to reduce the amount which is owed to all creditors and seek that all creditors stop the charging of interest.  There will of course be an effect upon credit ratings but no doubt such will be impaired by the time these organisations are contacted in any event.  Debt Management Companies should seek to reduce the sum owed in order that debts be repaid over at most a five year period.  I have seen cases where with interest still accruing at contractual rates the debts will never be paid as the debt continues to increase due to the reduced payments being made, there is simply no incentive to enter into that type of an agreement. 

Debt Relief Orders are fairly new but available, lasting 12 months where debts are below £15,000.00 and there are no assets available worth above £300.00.  In addition recent legislation has removed pension pots from that calculation.  Such orders obtained from the Court are termed ‘Bankruptcy Lite’ and result in the debts being wiped out on terms.

Many people will be more familiar with the terminology of an Individual Voluntary Arrangement (IVA), this is an arrangement controlled by a Licensed Insolvency Practitioner, a professional experienced and regulated in relation to proposing such agreements with creditors which require 75% of creditor support and often result in proposals being put forward resulting in a pence in the pound distribution and very successfully used in cases where time is required to allow monies to be introduced into the arrangement to pay creditors.  IVA’s are used very successfully where there may be property involved in respect of which time is required either to affect its sale in the best possible conditions or to raise funds to introduce to pay creditors but can last up to 5 years.  One worrying trend however has seemingly been credit card companies who vote against voluntary arrangements but in favour of debt management plans as they propose that interest continue and seek a higher percentage of debt to be repaid committing parties to lifelong debt.

In the event that there is no feasible or practical way to come to an arrangement with your creditors then bankruptcy may be the only practical solution.  Before doing so however it is most sensible to take advice from a professional either a Licensed Insolvency Practitioner or Lawyer practicing in the area of insolvency law before entering into this draconian of steps, indeed if this is to be contemplated it may well be necessary for spouses/life partners to take advice as to the effect that such may have upon jointly owned property and the implications. 

Bankruptcy may sometimes seem to be an easier option after all there is now automatic discharge in most cases after 12 months however the effects of bankruptcy are more long term after such a period.  Whilst discharge allows potentially an existence free of debt the obtaining of credit for a long period afterwards will be impaired by a Bankruptcy Order which certainly will also have adverse effects on for example insurance premiums.  Furthermore, assets which existed prior to the Bankruptcy are not released on discharge but remain with any Official Receiver of Trustee in Bankruptcy appointed.  

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