Posted by Guest on November 1st, 2009
It’s a question many of us ask ourselves particularly in the current recession. There has been a huge growth in personal indebtedness in the last ten years. Most people feel that credit cards are largely to blame but in reality the blame must lie with those of us who borrowed too much money and the credit industry which extended too much credit to us. Neither borrowers nor lenders paid sufficient regard to our ability to repay our debts.
If you want to get out of debt this can depend on many factors: the amount of our debts; how much we earn; our assets; our standard of living, our living costs and those of our family. Where we live might also be a factor. Pity those who live in the Republic of Ireland for example. Find yourself in serious debt there and it can be a life sentence. The bankruptcy laws are so outdated that very few people are bankrupted there anymore. The cost of bankruptcy is prohibitive and the procedure is rightly regarded as complex and bureaucratic. The option of an Individual Voluntary Arrangement or iva is not available in Ireland either. Successive Irish governments have failed to act to provide such a solution fully twenty three years after it was introduced in the UK. Having said that there might be a way to deal with your Insolvency outside of Ireland and we will return to this at the end of the article.
Get out of debt | Ireland
The only real option available in Ireland is to agree a Debt Management Plan (DMP) with your creditors. You can get debt advice from MABS the government funded Money Advice and Budgeting Service in setting up such a plan. Alternatively, you can use a specialist Debt Management provider to set up and manage your DMP. For a fee such a provider can negotiate with your creditors and make your monthly payments to them on a pro rata basis. You simply make one affordable monthly payment and the provider distributes this money between your creditors. The charge for such a service varies from one provider to the next, so you should shop around to get the best value. There are downsides to a DMP. For a start it can last indefinitely and it would not be unusual for a DMP to last ten years. There is no guarantee that your creditors will agree to freeze interest or penalties. Furthermore, your creditors can take legal action against you at any time. This is because there is inadequate legislation governing the operation of debt management plans. From a creditors’ point of view however, they can expect to recover all of the debts in time.
Get out of Debt | UK, Wales, Scotland & Northern Ireland
If you live in England, Wales or Northern Ireland you can also enter a DMP but you also have additional options. The Bankruptcy legislation there has been simplified in recent years and you can be discharged from bankruptcy in just one year. You may however be subject to an income payments order for up to three years. Downsides in bankruptcy are that you lose control of your assets such as your house. For some, bankruptcy may spell the end of their careers. For many, the perceived social stigma of bankruptcy is a major issue, although in reality this is not as devastating as it was historically. The big downside for creditors is that bankruptcy provides a very poor return and they often receive nothing. In Scotland, Sequestration is the name given to bankruptcy and the relevant legislation differs somewhat.
English, Welsh and Northern Ireland citizens have a further legally controlled solution available to them in the form of an Individual Voluntary Arrangement (IVA). Some of the advantages are that interest and penalties on your debts are frozen; the IVA will usually last just five years, although the term may be shorter or occasionally a little longer; you avoid bankruptcy; you will usually be able to keep your house and car although you might have to address any equity therein during the term of your IVA; creditors will receive a much greater return for the monies you borrowed from them compared to what they would receive in bankruptcy; all legal action is stopped and you are debt free on the successful completion of the term of your IVA. There are downsides to an IVA also. Under the legislation you must use the services of an Insolvency Practitioner (IP). Fees for these services are deducted from the monies you contribute to repay your creditors. However, your creditors will have agreed these fees up front so there are no surprises for you the debtor or the creditors. The five year term is long compared to the three years during which you might have to make income payments in bankruptcy but is considerably shorter than the usual duration of a DMP. If your IVA should fail during its term, creditors are again free to pursue you for the full unpaid balances and the protection you enjoyed in the IVA would cease. In Scotland a Protected Trust Deed would be regarded as the equivalent of an IVA, although the relevant legislation differs somewhat.
Under EU insolvency legislation introduced in 2002 i.e. Council regulation (EC) No 1346/2000, it might be possible to seek and obtain a solution for your insolvency in another EU member state. For example, an Irish citizen might be able to enter an IVA or petition for bankruptcy in England, Wales or Northern Ireland. To do this the debtor would have to be able to show that his ‘centre of main interests’ is in that other member state. The regulation states that ‘the centre of main interests’ should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties’
If you are insolvent and you think that your circumstances meet these requirements and you want to consider this option, you should obtain independent legal advice.
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