Which debt solution is right for me?
8th April 2015
This is a question that I am asked frequently by clients at the consultation stage. The simple fact is that whether you are a limited company or a private individual, there is usually a variety of options, each of which has their own pros and cons. There isn’t a ”silver bullet” and debtors should think very carefully about the long-term consequences and their future plans before selecting a course of action that is right for them as there may be (for example) three options that will resolve the problem today, but each will have a massively different effect further down the road.
Timing can often be the deciding factor in resolving debt issues as the earlier the issue is dealt with, the more options are available. Most people are generally wary of approaching the creditor directly when they realise they have a problem. This can be down to many different factors such as fear or embarrassment, but most creditors will try to work with you to reach a solution if you engage early enough – there does come a point when you’ve ignored the letters and phone calls for so long, they will feel they have no choice but to take legal action.
When you realise there is a problem, you need to educate yourself as to the options. It is not uncommon to find during the consultation that it is the first time the client has admitted the true extent of the problem to themselves, let alone a third party. It can be quite an eye-opening experience as sometimes you can go through all the credit card statements and realise there is a total debt of £40,000 and the client to say “hang on, I only remember spending £30,000” – they probably did, and the rest is interest and penalty charges. I vividly remember this feeling myself (see “my story”).
It can be easier said than done, but the key at this stage is not to panic. There WILL be a solution and you will need to examine your options carefully and EDUCATE yourself.
Let us look at two examples of formal personal insolvency (IVA and Bankruptcy): Sometimes the options can be down to a fact- “I am a director of a company, so I can’t go through Bankruptcy – an IVA is a better option for me”. Sometimes it can be a personal preference – “I may not be the director of a limited company, but I borrowed the money in good faith and I want to pay back as much as I can realistically – therefore an IVA is better for me then Bankruptcy”. Others may say – “It’s been an awful few years and I just want to draw a line under the whole sorry affair and start again – therefore Bankruptcy is better for me than an IVA”.
When you realise there is a problem, stop and seek help as your biggest enemy will be time.