Solve Debt Problems with Individual Voluntary Arrangements

2007-07-24 08:31:47

( Health )



Ways to Get Out of Debt

If you are deep into debt and have creditors hunting you down every minute, you have several ways to get out of it.

The most common way is to file for bankruptcy. There are two types of bankruptcy available to individuals. Under Chapter 7 bankruptcy law, your creditors will take over your personal assets in order to clear your debt. Under Chapter 11 bankruptcy law, all your outstanding obligations will undergo a major payment restructuring program to slowly clear all your debts. Chapter 7 bankruptcy is a good option only if you have lost all means to earn adequate income to pay off your debts, while Chapter 11 bankruptcy allows you to use existing income sources to gradually pay back all obligations.

When filing for bankruptcy, you need to undergo court hearings which may involve a long and tedious process for you. You should also be aware that while you are given a reprieve from your debts, filing bankruptcy causes a big dent on your credit record for a few years. While you have such adverse credit records, you will not have the opportunity to borrow or use credit cards freely.

Before you even file for bankruptcy, consider an individual voluntary arrangement with your creditors.

Characteristics of Individual Voluntary Arrangements

As the debtor or borrower, you initiate the individual voluntary arrangement with all your creditors. Like the bankruptcy option, individual voluntary arrangements will also appear on your credit record, but at a shorter period of time than for bankruptcy.

Under this arrangement, you agree to pay a percentage of your outstanding debts within a five-year period. The rest of your outstanding loans will then be written off. Your debt servicing and asset management activities will be closely monitored by an insolvency practitioner.

You may qualify for individual voluntary arrangements if you have a large balance of unsecured debts. You will also need to file your request in court and your request must be approved by a majority of your creditors. You will also be allowed to maintain individual savings accounts, stocks or other investments, provided there are no credit facilities attached to these accounts.

On the down side, your debt balance must be substantial enough to qualify for individual voluntary arrangements. Some creditors may not also accept the arrangement, and will prefer bankruptcy proceedings. Setting up the arrangement with the court also costs a few thousand dollars. Insolvency practitioners are willing to endorse the arrangement only if they feel that the creditors will accept the proposal.


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