Is bankruptcy still an appropriate solution for serious debt problems?

The latest figures from the Insolvency Service, which show a 32% drop in the number of bankruptcies in the third quarter of this year (compared with the same time a year earlier), may suggest that struggling borrowers are increasingly turning to other insolvency solutions - such as an IVA or a Debt Relief Order (DRO).

Debt Relief Orders, which are similar to bankruptcy but are only available to people on a low income, have seen a steady increase since they were introduced in April 2009 - only ever dropping in number in the final quarter of 2010. The Insolvency Service says that this is part of the reason bankruptcies have been falling at such a rate.

But an expert at Think Money says that bankruptcy can still be an appropriate solution for some people.

"While we urge struggling borrowers to consider all the options for tackling their debts, they certainly shouldn't write bankruptcy off as a possible solution. Bankruptcy continues to help thousands of people every year, and for some people's circumstances it can be more suitable than an IVA.

"For example, bankruptcy doesn't require regular monthly payments unless the borrower can afford it, which means even unemployed people could be eligible. In most cases, it's also over more quickly than an IVA. However, homeowners should note that bankruptcy normally involves selling their home to help repay their debts.

"All insolvency solutions affect the borrower's credit rating, but not getting the right help could have even more serious consequences in the long run.

"Of course, it normally takes a long time before a debt problem gets to the point where an insolvency solution is necessary - so the earlier people get help, the better. It's important that anyone with concerns about their debts contacts an expert adviser to discuss the best way of dealing with the problem."

Image © Mike Cherim/iStockPhotos

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Tags: debt, insolvency, statistics, insolvency statistics, Insolvency Service, The Insolvency Service, debt problem, bankruptcy, IVA, DRO, credit rating, Q3 2011, 2011 insolvency statistics

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