I am very pleased to be hosting an article by Neil Douglas-Campbell from the UK who writes about debt on his site debtadvice4free.com. A quick scan of the newspapers today makes me aware that this is a timely article, as there are reports of an increase in both company and individual insolvency, both here and overseas, since the credit crunch last year.
Over to Neil -

Many people think that the option of bankruptcy is an immoral one, and that people should face up to their debts and pay them off in full. To them it seems unfair that other should be relieved of their debt burden almost overnight. I couldn’t disagree more and would always suggest that people use the most suitable debt relief solution for their circumstances without feeling guilty about it.

Why Does Bankruptcy Exist?

If bankruptcy and related debt solutions are so morally wrong, why is it that almost all developed economies have them? To understand why, you only have to look at the “solutions” to debt that used to be used. In the UK people that were unable to pay their debts would be put into debtors prisons, thereby making it even more difficult for people to ever pay their debts. The Dickens novel “Little Dorrit” revolves around one such unfortunate individual. Such people were a drag on the economy as a whole since they found it hard to ever be a productive member of society again. A different solution was required, one that would balance the rights of the creditors with a recognition that the debtors situation was impossible.

Common Features of Bankruptcy

In the UK we have full bankruptcy or Individual Voluntary Arrangements (these are roughly the equivalent of chapter 7 and chapter 13 bankruptcy in South Africa). All of these schemes have features in common:

1. There is an investigation into the affairs of the debtor, to discover the full size of their debts, and whether they have been reckless.

2. An assessment is made of whether the debtor can pay off any proportion of their debts (either by the sale of assets or from income).

3. After a period, the debtor is released from the restrictions of bankruptcy and is free (in a legal sense) to start their life again free from their crippling debt burden.

Conclusion

If you are suffering from a very serious debt problem you could ruin the next 15 years (or even longer) of your life struggling to pay it off. Bankruptcy is not an option to be taken lightly, but it does offer a quicker way out for those in a debt crisis situation.

Neil Douglas-Campbell writes about debt from the perspective of someone that has been through a serious debt crisis. If you want more free information then visit his blog debtadvice4free, which providing loads of information including solutions to credit card debt

Thanks Neil!

In South Africa there are various options if you are insolvent. All of these are to help you solve your problem, not to punish you. To make a decision on which is best value for you, you will need to consult a legal practitioner. as a primer, I have listed local types of bankruptcy or debt management below;

• In Chapter 7 Bankruptcy you are in fact liquidating your assets.

• In Chapter 13 Bankruptcy you are trying to regroup, recoup and get back on track. It is commonly known as the “reorganization bankruptcy for individuals.”

• Chapter 11 Bankruptcy is commonly used as the reorganization tool for businesses. This kind of bankruptcy is attractive if you own “non-exempt” property that you want to protect. Chapter 11 will also help you to catch up on bills that have fallen into arrears. It effectively blocks an impending repossession or foreclosure.

• An Administration Order can be sought if debts do not exceed R50,000 by making an application to the relevant magistrate’s court. This gives you a degree of breathing space by allowing you to pay off your debts in fixed monthly instalments that will not exceed the difference between your income and reasonable expenditure. Once an order has been issued you may not incur further debts, or raise credit, without explaining to the other party that you are under an order of Administration. While the order is in force, no creditor has any legal remedy against you or your property for collecting money owing, subject to some exceptions (for instance, a mortgage bond), without the permission of the court. (I am under an administration order after a dispute with a bank went bad in 2004 and they tried to compound interest.)

• Judicial Management is only available for companies. An application is made to the relevant court, in order to have the company placed under judicial management. A Judicial Manager is appointed to run the company and to pay off the company debts as and when money becomes available for this purpose, subject to certain conditions. Once an order has been issued, no creditor has any legal remedy against the company, save for some exceptions.

• Compromise: An agreement is reached between the debtor and the creditors that certain assets will be liquidated subject to terms and conditions. The proceeds will then be accepted as full and final settlement of the debts, once again subject to certain terms and conditions

Further information at sabusinesshub.co.za