Think Money

Think Money

March 15, 2010 04:10 ET

Consider All Options for Unmanageable Debt

LONDON, UNITED KINGDOM--(Marketwire - March 15, 2010) - Financial solutions company Think Money has advised struggling borrowers to consider all their options when it comes to tackling unmanageable debt, as the worries continue for many people in the current financial climate.

The company added that while many people might consider bankruptcy as their only option for clearing debts they can't afford to repay, they should also be aware of the alternative solutions available, such as an IVA (Individual Voluntary Arrangement) or a DRO (Debt Relief Order).

The most recent quarterly insolvency statistics from the Insolvency Service, which looked at the final three months of 2009, found that there was a 24.9% increase in total insolvencies, compared with the same period a year earlier. It was the eighth consecutive quarter individual insolvencies had risen - and the highest number on record.

This may come as a surprise to some people, given that the economy has shown a number of signs of recovery in recent months. But as a debt expert for Think Money explains, problems for borrowers can continue long after a recession ends.

"It's not unusual to see the most serious debt problems coming weeks or months after the underlying problems in the economy have settled. It often takes a few months for these things to 'filter through', so even when it looks like the economy is improving as a whole, many borrowers will still be struggling.

"There are a few reasons why this can happen. For one, it can take a while for borrowers to recognise that their difficulties may be long-term - it will usually follow a run of missed payments, and many people will delay seeking help.

"There may also be other factors involved - for example, a borrower might be coping with their debts now, but if interest rates or energy prices rise over the next few months, that could tip some people 'over the edge."

"With that in mind, it's quite possible that we will continue to see high numbers of insolvencies for some time yet. And it's important that anyone facing insolvency speaks to an independent debt adviser about the right solution."

There are three main forms of insolvency in England and Wales:

Bankruptcy
A legal process in which a borrower's debts are written off by a County Court. This will usually be at the expense of some of the borrowers assets (such as their home or car), up to the value of their total debts, plus costs and fees.

IVA (Individual Voluntary Arrangement)
A legally-binding arrangement in which a borrower will repay as much of their debt as they can afford over a fixed period of time (usually five years). On successful completion, any remaining unsecured debt will be written off.

IVAs place fewer restrictions on the borrower than bankruptcy might, although it lasts longer and will have a similar effect on credit ratings.

DRO (Debt Relief Order)
A low-cost alternative to bankruptcy aimed at people with very little disposable income, no assets to put towards their debts and debts of less than Pounds Sterling 15,000.

The Think Money expert added that insolvency isn't necessarily the best option for everyone - some people may find that other debt solutions, such as a debt management plan or a debt consolidation loan, are more appropriate in their circumstances.

Notes to Editors

One of the UK's leading financial solutions providers, Think Money is based in Salford Quays, Manchester, and employs around 700 employees to deliver a comprehensive range of debt, loan, insurance and banking solutions.

Think Money defines its mission as 'To educate, rehabilitate and advise on all aspects of financial management'.

Think Money homepage: http://www.thinkmoney.com/

Think Money IVA page: http://www.thinkmoney.com/debt/IVA/

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