Bankruptcy is a legal solution to the problem of overwhelming debt. Indeed, if you are doing so for the first time, petitioning for bankruptcy can lead to freedom from debt within 12 months or less. You should, however, be aware that bankruptcy is a serious matter which has far-reaching implications for your personal, and financial, future. Once you are declared bankrupt, your bank and credit card accounts will be closed, your assets - possibly including your home and car - may be sold to pay off your debts, details of your bankruptcy may be published in local or national newspapers and your ability to obtain credit or, for example, security clearance, in the future will be restricted. Bankruptcy is far from being the only solution to serious debt problems, so it is advisable, in the first instance, to consult an independent, professional person - a solicitor, financial advisor, or authorised insolvency practitioner, for example - who may be able to propose an alternative solution.

Debt Consolidation

One method of avoiding bankruptcy and restructuring your finances may be to take out a debt consolidation loan. This may allow you to reduce your total monthly outgoings and start to live within your means, whilst still continuing to repay your debts. It may be, of course, that your credit rating is sufficiently poor that it precludes an unsecured loan so that any loan you obtain is secured on your home or other property. Once again, taking out a secured loan is not action that should be taken lightly; your home may be at risk of repossession if you are unable to meet the monthly repayments of any loan secured upon it.

Debt Management

Depending upon the exact nature and amount of your debt(s), a DMP, or "Debt Management Plan", may be another alternative. This is an informal arrangement between you and your creditor(s) - although typically presented to a creditor, or creditors, by a professional insolvency practitioner - whereby you make lower monthly repayments over a longer period of time (typically 5 years) until your debt is fully discharged. This course of action demonstrates to your creditor(s) that you are taking serious, practical steps to repay your debt in full - which, obviously, is in their interest too - and many creditors are sympathetic. On the downside, a DMP does not usually reduce the amount of the debt - or the interest, or other charges, accrued - and is not legally binding, such that creditors may request repayment in full at any time.

IVA or Individual Voluntary Agreement

A formal, legally binding alternative to bankruptcy is that known as an IVA, or "Individual Voluntary Agreement". This option is available, under the Insolvency Act, 1986, to debtors with debts of £15,000 or more. Once again, a debtor proposes to repay his or her debt(s) by reduced monthly repayment - calculated according to what he or she can sensibly afford - but it is possible for a large proportion of the debt (up to 70% in some cases) to be written off. An IVA allows a debtor to retain all of his or her assets, avoids any professional restrictions, and, of course, means that financial difficulties do not need to be announced to the world at large.

You should always take steps to address your debt problem regardless of what stage you think you are at or what solution you think is applicable, either through a contacting a professional debt advice agency or by you taking matters into your own hands.