bankruptcy question

chaplin80

Hi, despite my own financial situation I am also trying to support my close friend with his money issues. He is a single 36 year old man with almost 40K of unsecured debt. He earns around 40k a year bringing home on average £2400 per month.

He is currently up to date with everything however he feels that he is trapped as the interest means that despite paying around 1k a month in debt repayment, he is not really making decent in roads into the debts. He owns his own house with around 65k equity.

We spoke about it yesterday and he told me that he is considering bankruptcy. Would this really be the best option considering that he is able to meet his payments and that he has more equity than debt?

My debt situation is similar and I would do anything to AVOID bankruptcy but he seems to think that it is the best way forward??

sourcrates

Hi,

Bankrupcy is not really recommend if you own a house, as it would be at risk.
There are other options, possibly an IVA, which may be more suitable.

Advise your friend to check out there options on the National Debtline website.

[Deleted User]

like sourcrates says, bankruptcy isn't a good option if you own substantial assets. The official receiver would almost certainly force the sale of his house, since this would easily clear his liabilities.

National_Debtline

Hi

As your friend’s equity is more than his unsecured debt level I agree with the others that bankruptcy isn’t a good option. He’ll lose the house and may not see any of that equity. If he’s prepared to give up the house in order to clear his debts it might be a better option to simply sell the house himself, pay off his debts and have some money left over.

I don’t think an IVA would be a good option if he can afford to pay £1,000 per month towards debts. He would probably end up paying off all of his debts plus insolvency fees on top.

It’s a good idea for him to start out by completing a statement of affairs to work out whether that £1,000 per month is really affordable. If he can meet the minimum contractual payments on his debts and has a healthy credit history he may need to look into other forms of finance to reduce his interest rates. He may be able to get 0% balance transfer credit cards, and this MSE guide covers whether it would be cheaper to take a consolidation loan:

www.moneysavingexpert.com/loans/cut-existing-loan-costs

If he can’t realistically afford the minimum contractual payments on his debts a free debt management plan might work out well for him. Although debt isn’t written off, interest if often frozen so he may be able to pay off his debts within several years.

James
@natdebtline

fatbelly

chaplin80 wrote: »

Hi, despite my own financial situation I am also trying to support my close friend with his money issues. He is a single 36 year old man with almost 40K of unsecured debt. He earns around 40k a year bringing home on average £2400 per month.

He is currently up to date with everything however he feels that he is trapped as the interest means that despite paying around 1k a month in debt repayment, he is not really making decent in roads into the debts. He owns his own house with around 65k equity.

We spoke about it yesterday and he told me that he is considering bankruptcy. Would this really be the best option considering that he is able to meet his payments and that he has more equity than debt?

My debt situation is similar and I would do anything to AVOID bankruptcy but he seems to think that it is the best way forward??

He would lose the house, and ALL the equity would be swallowed up in paying off the creditors and the Official Receiver's fees (which can easily be 25-30k when dealing with a property)

And he thinks that's the best way forward??

It is now (from today) frighteningly easy to apply for bankruptcy online without getting advice or assistance from anyone.

As the DRO route (not available to your friend) is well established now and generally taken to have been a success I am staggered that they did not follow the good points of that process and have the fees payable by instalments in cash at a Post Office, and application though a qualified debt adviser Intermediary.

Lots of good advice on this thread

DorisTrousers

Just because you pay something, it does not necessarily follow that you can afford to do so. A budget listing all incomings, against all outgoings (not including debt repayments) will establish a truer idea of affordability.

Most people are initially surprised at what the outcome is, so that should be the first step.

dancingfairy

I don't know what your friend is thinking but he should get proper advice from national debtline or stepchange.
Df