INDIVIDUAL VOLUNTARY ARRANGEMENTS AS AN ALTERNATIVE TO BANKRUPTCY

2007-03-08 10:33:40

( Health )



Individual voluntary arrangements are an alternative to filing for bankruptcy. It is supported by Law. It is simply a voluntary arrangement initiated by the debtor with the creditor to repay a percentage of the debt over the life of the individual voluntary arrangement which is usually five years. An insolvency practitioner supervises this arrangement.

Advantages to Debtors

By initiating an Individual voluntary arrangements, a debtor avoids the publicity and eventually the stigma of bankruptcy. It is designed to suit the debtors current situation. Business continues to operate and generates income to pay off the debt under the terms of the voluntary arrangements. Also, the debtor participates in deciding what assets to be disposed to the creditors.

Advantages to Creditors

Since administration cost in the implementation of the individual voluntary arrangements is lesser, creditors have more chances of receiving payments. Tax relief claims against bad debts can still be filed by creditors.

Impact to the Debtors Finances

Although it is considered less restrictive than filing for bankruptcy, individual voluntary arrangements still impacts on the debtors finances. Debtors home and other current assets are still at risk if and when the creditors decide not to exclude it as part of the terms of payment. Future credit worthiness is highly at risk. As a consequence, some financial institutions require large amounts of savings and higher value for collateral as well as charge an above average interest rates.

The debtor needs to work hard on re-establishing his credit worthiness by making sure that the terms of the individual voluntary arrangements are followed and payments are regularly made. Financial institutions usually require a space of one year after the completion of the voluntary arrangement to provide another credit. The debtor should use the time frame of the voluntary arrangement in strengthening his finances by saving on investments that can be used as collateral for future credit.

Overall, individual voluntary arrangements allow the debtor to be still productive and participative in resolving financial crisis.


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