How to Avoid Bankruptcy and Get Back on Your Feet

Debts are not a fun subject for anyone, especially if you have been struggling with them for some time now. The reasons for getting into financial trouble can be plenty and, to be honest, they are not as important as figuring out how to get out of the issue. Sometimes, filing for bankruptcy can be seen as a quick way to get out of debt, but it can have a devastating effect over your credit score. 

Bankruptcy is viewed as a last resort to get out of financial trouble and it’s not an easy option. It can have negative effects both on your credit history and your personal life. If you decide that this is your only option, you can file for bankruptcy online and an adjudicator will review your application. If you qualify and the adjudicator makes you bankrupt, your assets will most likely be used to cover your debts and your name will be published in the Individual Insolvency Register. After 12 months you will be released from restrictions and debts, but your assets can still be used to pay your debts. However, there are some debts that will not be written off, for example debts originating from frauds or damages for personal injuries to others, unless the court states otherwise. 

Before deciding to file for bankruptcy, explore other options that may help you pay off your debts, without having to sell an arm and a leg.

Cut Down on Expenses

Out together a budget and analyze where you spend most of your money. You might discover expenses that are not necessarily a need you can cut them off without any worry. 

Doing a budget list is not hard. List down your incomes in one column and figure out how much money you receive every month from all income sources. In another column write down your essential expenses, like bills, rent and food. In a third column list down all your other expenses. This is the column you will be looking at, when deciding what you can cut down. 

There are many ways you can cut down expenses:

  • If you rent your place, consider moving to a smaller house, with a lower rent
  • Use a bike or public transport and keep your car for when it’s really necessary 
  • Skip vacations or social events 
  • Cut down on small luxuries that may seem like a necessity: gym, dining out, magazine subscriptions

Yes, this might not be fun, but you may discover that some of your habits were the ones that put you in this position, to begin with. You may even develop a new, healthier lifestyle that you can keep even after you have all your debts covered. 

Earn Some Extra Money

This is probably the first thing that comes to mind, when trying to get some extra money to get you back on your feet. Consider doing some extra hours at the office, if that is possible, or take on a part-time job. It might sound exhausting, but think about the relief of not having any debts. Accept this as a temporary situation and encourage yourself to find the way out of it. If your job allows, consider some freelance projects that require no investment and can get you quite a good profit. While doing this, you might discover you can make some real change in your lifestyle, which will earn you more money in the future. 

Another way to earn some extra money could be selling some of the stuff you own. Electronics, furniture that you don’t use and even clothes. There are multiple online websites where you can showcase your merchandise and get a good pricing. 

Consider IVA

Another solution to pay off your debts is IVA (Individual Voluntary Arrangement). How IVA works is it suspends your debts and lets you pay them over a set period of time. The usual period is five to 6 years and you must prove you have a regular, long-term income to sustain it. IVAs are set up by an Insolvency Practitioner that works with you to help build a plan that you can take out to your creditors. Your Insolvency Practitioner will discuss all aspects of an IVA with you and will help you keep all assets that you will otherwise have to sell to pay up your debts, like house and cars. 

IVA can be used to pay off debts such as personal loans, mortgage shortfalls, credit cards and even HM Revenue & Customs debts. However, student loans, child support arrears or court fines are not included. 

Unlike filing for bankruptcy, which will have a big impact on your bank account, if you choose an IVA, you will be able to continue using the account and you are not obligated to let your bank know about it. 

However, there are a few risks involved with IVA. If you don’t have a secure income for the next year, to sustain your payments and IVA fails, your creditors can take actions against you and can make you bankrupt. 

Ask for Help

Although it may seem counterintuitive to ask for help from friends and family when trying to get out of debt, as it would obviously include making other debts, it might be a good solution. They are people that know you and you can negotiate the terms a bit more different with them. It’s not nice to go back to your parents and ask for money, but financial trouble is not a better option either. You can discuss with them and even draw up a legal contract, to ensure them all their money will be paid back. Set up a monthly amount of money and a period of time over which you will be paying them back. If your friends and family can help you, don’t go back to old habits and start spending money on unnecessary things. Instead, include this option in a bigger plan, along with cutting down expenses and working some extra shifts. 

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