The rate of bankruptcies is still increasing, but the rate is slowing down. A British PriceWaterhouseCoopers study found that the rate of bankruptcies and Individual Voluntary Agreements is still increasing, but the rate of increase is leveling off. The cumulative rate for year to date is still lower than the comparable period from 2006 and 2007.
The UK has a program called IVAs (Individual Voluntary Agreements) that allows individuals to negotiate payment terms to avoid a full on bankruptcy. Debt Free Direct describes the IVA process:
The IVA or Individual Voluntary Arrangement was introduced in 1986 as an essential piece of legislation which allows you to avoid the trauma of declaring bankruptcy. It suits many people who are over £50,000 in debt, provided that they are in regular employment.
An IVA is a legally binding agreement which protects you against any further action from your creditors. Once you've committed to an IVA, you could become debt-free in sixty months.
With an IVA you agree with your creditors to paying only what you can afford in a single payment each month over the period of five years. Your creditors agree to write off your debt which you're not able to repay and they will leave you alone.
IVAs are a good alternative to bankruptcy for UK citizens that have found themselves in a big pile of debt. While I have little sympathy, as they got there through their own actions, it is a much better option than calling it quits and declaring bankruptcy.
The United States does not have a similar system to IVAs, but you can negotiate with creditors and work with credit assistance companies (non-profits) to consolidate and eliminate debt. The goal here is not to just wipe your slate clean, but to help you clear out the problem yourself. Remember, a settlement or write off is terrible on your credit report, though not as bad as a bankruptcy.
The banks would rather recoup some money than no money. A settlement happens when a bank negotiates with a customer to take a lower amount of debt to collect something rather than risking a complete non-payment. Again, I have little sympathy here. People buy things themselves, the bank does not force you to. The bank only gave you the credit card, you make the choice on how to use it.
The best way to avoid insovency, bankruptcy, and mounting debt problems: spend less than you earn. It is that simple. Yeah, there are lots of excuses for why things went bad, but those always come back to the person who spent the money. Don't be that guy. I know it is an “ugly truth,” but it is a truth.
Most people who read this blog don't have this type of problem. Good for you. If you do, however, man up and deal with it. There is always a way to figure things out.
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