Making a fresh start in 2019

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The news has been full of stories of people struggling with crippling debts, some as a result of loans, others due to the use of credit cards.

Despite the majority of people agreeing that the UK is finally rising from the doldrums of the recession in 2008, the UK still appears to be in ‘love’ with debt.

The average household debt in the country currently sits at £59,008, which is higher than before the financial crisis of a decade ago and 8.3 million people in the UK are unable to fully pay off debts or household bills.

If we extrapolate these figures further it means that the average adult in the UK holds debts of around £30,819 or around 113 per cent of average UK annual earnings.

December and January can be a particularly bad time a year for debt as families look to shell out on Christmas and the New Year, while also spending more on other household bills, such as gas and electric.

Much of the news has focused on low or middle incomes, while very little consideration is given to those on higher incomes.

However, many of those on higher incomes may fall into the position of being a director or owner of a business who often face differing pressures from debt, particularly where liability for their business may fall directly on their shoulders.

When it comes to personal debt there are a number of options open to individuals depending on their levels of debt.

One easy step to a new future is an Individual Voluntary Arrangements or IVA. An IVA offers individuals the opportunity to take control of their lives again and be debt free by giving them breathing space to negotiate with their creditors to put in place plans to settle their debts over time.

What’s more, an IVA allows a company director to continue running their business, unlike bankruptcy which prohibits a person from being a director for several years.

Bankruptcy really is the ‘nuclear’ option, as it will fundamentally affect your ability to fulfil certain professional roles and obtain any form of credit in future, whether personally or for a business.

If you own a home or any other high-value asset these will also have to be sold, but you will be left with household goods and a reasonable amount to live on. It could also affect your pension and lead to assets being removed from your business or see your business closed altogether.

Bankruptcy usually lasts for one year and most of your debts will be cleared, but some debts like court fines and student loans can never be written off.

If you have debts of less than £5,000 owed to at least two creditors and have a County Court judgement against you, you could instead apply to the Court for an Administration Order.

Each month you make an agreed payment to the Court, which it will distribute pro-rata to each of your creditors. Whilst the order is in place, no creditor or debt collector can take action against you.

However, if you do not comply with the Order, it can be revoked, although it is possible to apply for a reduction in the size of monthly payments.

When a partnership has financial difficulties, it can enter into Partnership Voluntary Arrangement (PVA) which will take account of the partnership’s assets and liabilities and debts.

A PVA is very similar in concept to the Company Voluntary Arrangement (CVA). However, due to the personal liability of each partner, they will almost certainly need to have an Individual Voluntary Arrangement (IVA) to protect their personal assets.

Trying to reduce debts within a business is a completely different story and requires a different set of statutory procedures, which could include a CVA, which functions in a similar way to an IVA, an administration order or pre-pack administration.

It is, therefore, best to seek professional advice in order to discover which option best suits your situation.

If you are entering 2019 with fears about the amount of debt you or your business holds then you should take action immediately.

People often ask us what advice we would give to someone in trouble with debt and our answer is always the same ‘act now, not later’.

Early action means you have less debt, early action means you have more options and early action means less stress.

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