Bankruptcy Vs IVA Debt Consolidation

By: Alison Jenkins
When an individual declares bankruptcy, they surrender control of all their assets to a magistrate, who with the support of a panel, decides how best to use these assets to pay off their creditors. This means all the individuals assets, their home, their car, any capitol they have are all taken away from the applicant. As a bankrupt, all control over assets is relinquished. For this reason, bankruptcy has always had a certain stigma attached to it. Beyond the immediate financial costs of bankruptcy, there are some longer lasting implications. Future credit / mortgages will be difficult to obtain, and, a bankrupt cannot become the director of a company for a given period of time.

In return for handing over all assets, the debtor has the remaining portion of their debt (the part they cannot afford to pay) written off. Effectively, the debtor is left with nothing, however, this means they are at least "debt neutral" as opposed to being heavily indebted.

An alternative to bankruptcy is an IVA (Individual Voluntary Arrangement). With an IVA the debtor is allowed to retain control over their assets, such as their home. In an IVA, creditors are required to agree to write off the portion of the debt the applicant cannot afford. Only if 75% of the creditors (those owed 75% of the monies) agree to enter into an IVA can the process continue. If creditors do not agree, then, the debtor must pursue other avenues of debt management / personal insolvency.

Assuming the IVA is agreed, both the creditors and debtors are legally bound (UK Only) to the agreement. That is to say, the creditor cannot subsequently seek monies / debts that were written off as part of the agreement. The debtor on the other hand must agree to pay the agreed amount on time every month. Should the debtor default on payments, then the IVA may be considered forfeit, and, the debtor once more becomes liable for the full amount of the debt. After an agreed period (typically 3 to 5 years) the remaining portion of the debt is written off, and, the debtor is considered "debt free".

The advantage of an IVA for the debtor is that they are able to protect their assets, i.e. their home. Whilst they may still struggle regards future finance, there is less stigma to an IVA than there is to bankruptcy, and, being party to an IVA does not prohibit one from sitting on the board of directors of a company.

The advantage of an IVA for the creditor is that they are often able to recoup more of the debt than they would be able to if the debtor were to declare bankruptcy. It also avoids any further legal expense, ensuring an amicable resolution of the debt problem.

An IVA can only be arranged by a licensed insolvency practitioner (who must be a qualified accountant), again, only with the agreement of 75% of the creditors. IVA's are of course only suitable for those with high levels of unsecured debt, where their home cannot be repossessed by the creditor.

You can read more on IVA vs Debt Management at A1 Debt Solutions. Further information on bankruptcy and IVA's can be found in another discussion on IVA Vs Bankruptcy.

Payday loans

By: Jamie Hanson
A payday loan is a short term loan being borrowed by a person to take care of an urgent expense. The loan is cleared on the next payday along with an accrued interest. These loans are also known as cash advances. Cash advances can also have a connotation in regards to the credit cards.

Generally payday loans are being taken to meet certain unforeseen expenses which crop up urgently. If there is no friend you can borrow from and moreover, you have a poor credit history, then you are left with no option but to take a payday loan. There are over 10000 payday loans stores in US itself. Apart from this, there are innumerable online stores offering the same bounty.

But are they bounties? Not by a long way. Payday loans are criticized all across the world and are also engaged in various legal battles for profiting through the plight of middle-class gentry. The interest rates are wickedly high. In fact, it is a mockery of banking norms. The rates vary from 15 to 30 percent for a fortnight. When translated to a yearly percentage, this may amount to 180 to 360 percent. For instance, if you avail a loan of 1000 dollars till the date of your next salary, you will have to write a post dated check of 1150 dollars to 1300 dollars depending upon your state of residence. The loans are hence criticized for promoting a debt trap.

It is not right to take payday loans for the purpose of fishing the money out on weekends. Yes, for an urgent necessity, it can be an effective bailout but it shall only be used for this purpose. Further, it is important to take only that much amount of loan which can be feasibly paid at the payday. Unwarranted money lending can create grounds for a vicious cycle of debt. Also, a borrower should try not to flip the loan to next payday and next payday and so on; because this way, he will lose 15 percent of minimum capital per fortnight. For instance, a payday loans flipped for a year sucks 4 to 8 times the loan amount in a year which means if you take a loan of 1000 dollars and flip it the whole year then you will have to pay something like 5000-9000 dollars in a year. Now this is blasphemous.

Payday loans have partly succeeded because they do not generally require a credit check. Borrowers are either needy people or they are simply besotted to the concept of borrowing. If they have a poor credit track then there is no chance of borrowing money from banks, even credit card cash advances cannot be availed. The payday loans come to the rescue and are easily available without credit check. Amount up to 1500 dollar is made instantly available. Few offline lenders look for decent bank statement and some associated paperwork. Online payday lenders do no ask for any documents generally.

Find out more about payday loans and cash advance at myonlinecashadvance.net