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Bankruptcy is on the Rise- Is There an Alternative?

May 27th, 2008

Experts are warning that the number of bankruptcies will continue to rise in the UK. This prediction follows the announcement of figures for the fourth quarter of 2005 which were at an all time high.

According to official statistics 13,501 bankruptcies were filed in the fourth quarter of 2005. This figure represents an increase of 11% up on the previous quarter and even more strikingly it was 38% higher than the same period in 2004.

However, these figures only partly show the rue state of affairs. Britain is facing a personal debt crisis and for every person who is declared bankrupt, plenty more are suffering from serious debt which blighting the quality of their lives.

The widespread nature of personal debt is largely a result of how easy it is to obtain credit. Consumers are encouraged to borrow more than they can afford so that they can spend today and worry about how to pay for it tomorrow. In other words, consumers want instant gratification and would rather get into debt and have the products they want than do without or save money.

The other reason that bankruptcies are on the increase is the changing attitude towards it. Ever since the Enterprise Act of 2002 reduced the period in which people could be discharged from bankruptcy, it has been seen as an easy way to get out of debt.

This perception is very far away from the truth however. There are numerous disqualifications, restrictions and stigmas associated with bankruptcy. And these disadvantages have long term and far reaching consequences.

Consumers who are considering bankruptcy as a way of sorting out their debt problems would be well advised to consider the alternatives. In 1986, the government introduced IVAs as an alternative to bankruptcy which would benefit both debtors and creditors.

An IVA is a good alternative to bankruptcy because there are no fees or legal proceedings involved with it, unlike with bankruptcy. Moreover, an IVA offers a greater repayment of the debt than would otherwise be achieved if the debtor were made bankrupt. For these reasons an IVA is a good alternative to bankruptcy from a creditors’ perspective.

From the debtor’s perspective, an IVA is a good alternative to bankruptcy because it does not have any stigmas of disqualifications associated with it. Additionally:

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Avoiding Bankruptcy

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