The first ‘golden rule’

The first golden rule is:

‘People who are really struggling with debt should look at personal bankruptcy first because it’s almost always the best option’.

What!  This is exactly the opposite of what you’d expect. It’s opposite what most debt advisers will tell you.  Why do we say this should be the first golden rule?

Let’s look at the facts:

• Bankruptcy is inexpensive, under £1,000.  No expensive insolvency practitioner’s or debt management fees;
• Bankruptcy is quick – you’re in bankruptcy for just twelve months.  Compare this with how long you’ve been juggling your finances.  IVAs are typically 5 years – can you see forward 5 years?;
• There’s far, far less guesswork than all the other ‘solutions’ for dealing with your debts.  You can get to know ‘what’s in the tin’ because  it’s a formal legal process with preset rules and procedures.  There are far fewer areas for compromise or negotiation than other solutions – and you can learn where they lie and within what limits the likely outcome lies;
• There’s no messy negotiation with your creditors – your bankruptcy is imposed on them if you follow the debtor’s petition route;
• In 95% of cases all the debtor loses is his unsecured debts: he loses no assets, not even the family home;
• In 20% of cases, the Official Receiver seeks an income payments agreement (a payment by you into the bankruptcy from your surplus income now that you are not paying your unsecured debts).  You no longer have to work as hard or as long hours as you did before, you can manage your income down for the year of bankruptcy, after that it’s too late for the Official Receiver to come after any surplus income.  Even if you do have to accept an income payments agreement, it lasts only three years, two less than a 5 year IVA;
• If you are lucky enough to enjoy a windfall, such as a lottery win or legacy, the Official Receiver can only get his hands on it if you became entitled to it before your discharge from bankruptcy (i.e. within 12 months of the start of the bankruptcy).  Compare this with the situation in IVAs, 5 years and Debt Management Plans, the duration of the Plan however long that may be.  Have you got a crystal ball?
• Bankruptcy, unlike IVAs and debt management plans, are a great catalyst for change – in my experience people are more likely to live their lives differently and ditch the bad habits that led to the financial problems in a bankruptcy than if they follow any other solution.

Now read the second golden rule!