Debt forcing major decisions, go bankrupt or not?

[dingdong05]

1st off, thanks for reading, all info gratefully received!

I am in debt to credit cards in the region of £10,000. I've been struggling with the minimum payment for a while but now I have to accept that I cannot spend 1/2 of my household income (I'm on income support now)to service interest. The worst one, and the one I can see no end to is over 6 grand, and its over 100 quid for the interest alone.

I have to accept the fact that I won't suddenly get a great job/win the lottery and face the truth! Also I have no savings (ha!) or property so have no assets to sell off.

So the lady at CAB said I have 2 options: bankrupcy or a reduced payments plan.
Bankrupcy = over in a year (I know about the 7 years on the credit rating)
Reduced payments = still paying all the actual debt, without interest (hopefully) and not over for at least 8 years, assuming utter poverty and no decernable increase in standard of living in the meantime.

1 MUST be chosen, and on the surface, bancrupcy looks more attractive, but what is the real repercussion of going bankrupt as opposed to having a longlasting black mark on my rating and continued poverty that the reduced payments plan would bring?

poor you what a bummer

2 main probs i know with bankruptcy are: hard to buy a house later and hard to get some jobs (e.g in a bank - ha ha)

I would go for the reduced payments. Hopefully you're not going to be on IS the next 8yrs are you? So if you started working you could increase the payments and get it cleared quicker.

I missed something...are you working at a poorly paid job, or not working at all. And in either case, why do you not stand a chance of bettering your situation?

Thanks everyone!
SofiaAmes & FAQ, I was working pt for myself and after 3 years of loosing money had to give in, hence debt (not all of it business) and joblessness. I can see me getting a job, but realistically, in this town, and with having the "real" job break I've had it'll be tough to get anything more than a p/t or minimum wage job. Thats not a problem, but moneywise I won't be much better off so speed of payments won't increase a huge amount. I'm a single parent, with no maintenance, that's not a boo hoo, just saying any income, or even babysitting has to be supplied and paid for by me. Income goes up, but then so do the expenses

TBH I'm scared, I've gone a bit gunshy banking on the future after getting myself into this by being optomistic of future earnings lol

kif,I'd have to berate myself daily if I worked in a bank

Are you sure that you wouldn't be better off with even a part time or mw job? You would get family tax credit (or whatever the hell the call it now) and if you figure out your numbers right, you could do ok. In any case, if you don't start somewhere (maybe with not your favorite or best paying job), you certainly are never going to get anything better. From your post, it sounds like you are together and speak and write well and could move up in an organization.

Shucks, thanks for that, it's good to know

Of course you are right, the future is not all doom and gloom, I am ever hopeful for the future. I have no intention to live on benifits indefinately, and actually should have a pt job with interesting prospects in the new school year. But it's not guaranteed and I have to cope at least til then- which I can't. Hence the urgency, and whilst I can see improvement in the not too distant future I am so bogged down, with no room for manouver the thought of just throwing in the towel and starting all over is mouthwatering. As is the difference between starting a new credit rating in 8 years (1 + 7) as opposed to 15 (8 + 7). I'll be too old to get credit in 15 years anyway!

Go over to www.debtquestions.co.uk in case you haven't thought of everything

would an admin order be any good for you - its sort of like IVA-lite where some of it gets written off but you pay a small amount - I don't know the exact percentage

good luck

I don't think it would be on for the 8+7 (15)yrs - as it would go on now but with regular payments should disappear in the 6/7yrs after it's gone on.

Could be wrong there so stand to be corrected.

And you also have to ask yourself, do you want to get credit again in the future?

faq- credit in the future isn't something I'd choose, but what if I need credit? EVERYTHING is based on a decent credit rating, or at least having a credit rating. That's what really worries me.

tbh - given the basic credit my DH has been able to get with his credit rating I don't think you'd have a major problem in the future.

We've got huge debts (quite a bit larger than yours) mostly in his name though, and we've managed to agree lower payments with most of the creditors and have decided that once everything is clear that we just won't use "credit" for buying stuff in the future - obviously there'll still be the credit checks for contracts for stuff, but even in DH's experience with appalling credit rating you can still get that.

Employers may run your credit rating. They do here in the usa. Also, don't forget that if you go for the long term low payment option, you may, as your income goes up, (we are assuming that it will) pay it off in advance.

employers don't run credit checks on you in the UK unless you work in certain areas.

i had a bankrupcy in the US over 8 years ago and recently ran my own credit check there and it came up as just basically a zero, as if i'd never even been there.

OP, are you in council/HA housing and not ever going to buy your own home in the private sector?

if so that's a big bonus if you ever consider bankrupcy.

I'm in council housing, and if I buy it won't be for a very long time...

Thanks everyone, I can read all about the facts, but it's good to know real life experiences.

OK here is what rescued me, it may work for you or it may not. Basically, if you are in this much of a mess you have probably racked up a lot of bank charges (for bouncing cheques and direct debits and being over your overdraft limit). It is worth trying to reclaim these as there is a strong likelihood that it is unlawful for the bank to charge you so much money. Currently the bank-charge-reclaim thing is on hold as the banks and the OFT and everyone else fight it out in constantly-deferred court cases BUT!!! if you are in severe hardship the bank must look at your claim straightaway. Go to the Moneysavingexpert site for a step-by-step guide and when you put in your claim say you are about to have to go bankrupt.

just passing on my friends experience

she entered into an iva rather than going for bankcrupcy. she said with hindsight it was a really stupid thing to do. She basically struggled on for another 3 years. eventually due to pregnancy her creditors accepted a one off of £1000 to settle all debts, but in the meantime she had had 3 years of trying to get money together each month-living on nothing.

she is now around 6 years down the line from her initial problems and no nearer buying a house- she had no assets like you.

she always said that if she was faced with the decision again, she would bite the bullet and go for being bankrupt. she said that doing an iva was the same as being bankrupt- no overdraft or credit but just went on for longer.

and before i am flamed, she prob like you, did not run up debts intentionally or for foreign hols and heartily beleived in paying back what she had borrowed-her change in circs made that impossible.

best of luck- it looks like you have decided to face it and sort it out and that it a brave step

solidgoldbrass- I have a couple of charges, but not enough to make a dif- I have always managed to pay things, especially if they brought charges . Except for 2 charges in the last 2 months due to an etirely forgotten annual charge, grrr.

risingstar- your friend has hit it on the nose. If I'm going to be "ruined" surely it'd be best to make it a quick break. Likewise I have no problem in paying my debt, but is it just pride that is holding me back from throwing in the towel altogether and going bankrupt? The CAB lady said if I couldn't pay off my debts in 5 years then I shouldn't bother and, realistically, that won't happen. My brother similarily entered an agreement and due to highs and lows of modern employment it took him 8 years instead of 5.

Your friend is saying the kinds of things I suspect I'll think if I don't bite the bullet. Should I learn from her experiences?

she really is adamant that she made the wrong the decision- in fact she said herself that it was pride and the horror of what others might say that put her off. like you, she had no offers of help from family to fall back on. i dont think it will be easy but its kind of hobsons choice really.

Certainly in the current economic situation you will not be the only one and people will not think that it is 'shameful' (and if they do, bollocks to them. they have just been lucky).

Okies, I have to own up to working in a large financial institution with customers who unable to meet their debts, so whilst my knowledge is bound to the business I work for I have got several tips...

First of all the CAB's advice varies at the best of time depending upon the agent you spoke to, normally they would make it fairly clear which path they would recommend for you (bankruptcy or arrangement) rather than leaving yourself unsure of which course to take.

Without going into the value of your debt, the number of your creditors or your exact situation it's hard to advise, but I'm surprised that the CAB didn't give you any information on the new Debt Relief Order, if you hit the criteria this sounds like a good third option for you:

"Debt relief orders are designed to give those who have debts of £15,000 or less, assets of less than £300 and surplus income of less than £50 per month the opportunity to apply for an order that will lead to the debts being discharged after one year.
During that period, people who have a debt relief order will be protected from enforcement action by their creditors and will be subject to similar restrictions to bankruptcy. Those whose financial circumstances improve during the order will be expected to make arrangements to repay their creditors, and there will be civil and criminal penalties for those who abuse the system. "

Basically if your situation changes for the better in a year you set up a plan, if it stays the same then you go forward into bankruptcy.

If you'd like some advice from a different source to the CAB I'd highly recommend the Consumer Credit Councilling Service cccs but be aware their waiting list for a telephone appointment is an average of 11 days at present.

A word of warning and an important consideration for your situation! Whilst the company I work for are happy to apply an interest freeze plan on debts for 6 months at a time, if the payment isn't increased after 18mths then they would proceed with either legal action - or wiping the debt which would affect your external rating to almost the same extent as a bankruptcy anyway.

Sorry it's just general waffle, but I hope some may help.

Sorry, should have mentioned the CCCS is, like the CAB a completely independent and free organisation, funded by Government and Charity donations.

in your case, i'd go bankrupt.

i truly had NO choice. there was NO paying up over time for me because i'd been made redundant twice in a year and was working for a temp agency, then got hit with a HUGE bill.

i had no assets at all.

i don't see what's shameful about it at all if you don't have a choice. that's why it's there.

My DH & I went bankrupt in 2007 (unplanned but very much wanted & longed for DD1 meant that our debts increased beyond recoverable). Truly the best decision we have ever made.

We have been debt free for 2½ years & didn't have any issues afterwards.

Onelonelysock: that sounds almost too good to be true... is it available in Scotland too? I've also heard of a Trust Deed arrangement, which sounds similar to this debt relief order, but over 3 years. My circs fall within the criteria and it sounds as if the restrictions for the 12 months are the same as with bankrupcy, without the potential long term problems.... I just checked, and it's not in Scotland.

Ah well, I guess I should call some of those numbers, I know CAB is good, but I clearly need to get some 1 on 1 advice!

Thanks for all your input xxx

It's called insolvency in Scotland. So do check teh rules surrounding it.

Like I said, mine was in the US and was incredibly easy. I didn't even have to go to court!

dingdong05 - did the CAB lady not mention a Debt Relief Order (DRO)?

This is a simple low cost form of bankruptcy if someone has few assets and unsecured debt under £15,000, and low income. I think bankruptcy is an expensive process but DRO costs about £90.

Read about it here

I work for a charity that helps people in debt so we always consider this as a first option. Tere are some restrictions but DROs have only been available since 1 April 2009 so not everyone knows about them.