Moving from Being in Debt to Being Solvent

Many of us dream of possessing our own home or even just our own vehicle. In today's downturn it may perhaps just continue to be a goal but for the lucky few or should that be the thrifty few, it continues to be a great ambition. Providing one is able to manage one’s financial obligations, and also have a reasonable amount of regular income it's entirely possible to go from being in debt to acquiring one's own property. There has been a massive growth in private indebtedness over the last ten or more years. It is generally believed that the use or maybe more correctly the improper use of credit cards is largely to blame for individuals getting into personal debt which may be beyond their competence to pay back. It's not the credit card in itself that is responsible. It would be unreasonable to allocate the blame to a piece of encoded plastic. In truth the blame lies with us who borrowed excessively and with the credit industry which extended far too much credit to us. Neither we the borrowers nor they the loan merchants paid anything like sufficient attention as to whether we might repay our personal debt.

If we wish to have rather than owe then our first target must be to get out of debt. Getting out of debt depends upon many variables and the most critical is the amount of our personal debt. Nearly as critical is the quantity of our steady income and our household living costs. If we have assets then we have a head start even if the assets are made up merely of the net equity in a property such as the family home. Another important factor to be taken into consideration is the lifestyle we wish to experience. If we set the bar too high, then possessing may be simply a aspiration permanently.

Exactly where we are living may possibly be a point to consider. Pity those who live in the Republic of Ireland for example. Find yourself in major debt there and it can be a life sentence. The bankruptcy laws are so antiquated that hardly any individuals are bankrupted there anymore. The cost of bankruptcy is high and the process is rightly deemed difficult and bureaucratic. The solution of an Individual Voluntary Arrangement (IVA) is not obtainable in Ireland either. Successive Irish governments have failed to do something to offer such a remedy fully twenty five years after it was launched in the UK. However there could be an opportunity for Irish people to deal with their deficits away from Ireland and we will come back to this point at the end of this article.

The one alternative offered in Ireland if you are insolvent is to agree to a debt management plan (DMP) with lenders. Tips may be obtained from MABS the government funded Money Advice and Budgeting Service in setting up such a plan. Then again, a specialist Debt Management provider can create and control our DMP. For a fee such a company can negotiate with creditors and make your monthly payments to them on a pro rata basis on our behalf. We only make one affordable monthly payment to the provider who allocates it between our creditors. The fee for such a service differs from one provider to the next, so it is better to shop around to get the best value. There are disadvantages in a DMP. To begin with it can last indefinitely and it would not be unusual for a DMP to last ten years. There is no guarantee that creditors will consent to freeze interest or penalties. Furthermore, lenders could still take legal action to recover the debt at any time. It's because there is too little laws relating to the running of debt management plans. From a creditors’ viewpoint however, they can expect to recoup all of the outstanding debts in time.

Individuals living in England, Wales or Northern Ireland could also enter into a DMP but these people have got additional choices. The bankruptcy legislation there has been made easier in recent years and one can be released from bankruptcy in only one year. The insolvent man or woman however can be subject to an income payments order for up to three years. Problems in bankruptcy are that the insolvent man or woman will likely lose control of property like the family home. For some people, bankruptcy may spell the conclusion of their occupations. For most people, the perceived public stigma of bankruptcy is a significant problem, even if in reality this is not as destructive as it appeared to be in the past. The big downside for creditors is that bankruptcy gives a inadequate gain and they often receive very little. In Scotland, sequestration is the term given to bankruptcy and the relevant legislation differs a bit.

English, Welsh and Northern Ireland citizens have a further legally controlled option available to them by means of an Individual Voluntary Arrangement (IVA). Some of the advantages are that interest and penalties on debts are frozen; the IVA will in most cases carry on for only just five years, though the time period can be shorter or occasionally a little longer; the debtor avoids bankruptcy and will usually be able to continue to keep his or her vehicle (up to a restricted value) and home although any value in the property will almost certainly have to be dealt with during the duration of the IVA; lenders will receive a significantly higher return on the money borrowed from them as compared to what they would achieve in bankruptcy; all legal action is ceased and the person in debt becomes debt free on the successful completion of the term of the IVA.

There can be downsides to an IVA also. Under the legislation the consumer has to use the professional services of an Insolvency Practitioner (IP). Charges for these services are deducted from the funds the debtor contributes to pay back lenders. However, lenders will have agreed these fees beforehand for that reason there aren't any surprises for the debtor or the creditors. The five years term is long as compared to the three years during which the debtor may need to make income payments in bankruptcy but it is considerably shorter than the usual duration of a DMP. If the IVA should fail during its term, lenders are again able to go after the borrower for the complete unpaid balances and the borrower will lose the legal protection enjoyed in the IVA. In Scotland a Protected Trust Deed is thought of as the same as an IVA, while the associated legislation differs to some extent.

Under EU insolvency laws launched in 2002 i.e. Council regulation (EC) No 1346/2000, it is possible to look for and get a solution for personal insolvency in an EU member state other than the state in which the financial obligations were incurred. By way of example, an insolvent Irish citizen could possibly go into an IVA or petition for bankruptcy in England, Wales or Northern Ireland. To accomplish this the Irish person in debt would be required to be able to show that his or her '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 financially troubled and you consider that your plight may meet these prerequisites and if you desire to think about this solution, you should obtain impartial legal counsel.