Which is best Debt Management or Bankruptcy
Trying to decide whether Debt Management or Bankruptcy is best? Both are good solutions. There are a number of things you can consider to help find out which is best for you.
Included in this article:
- How much can you afford to pay towards your debt?
- What do you owe and to whom?
- Do you own your own home?
- Which solution is better for your credit rating?
Need help? Rather speak to a person? Call 0800 044 5407 or fill in the form below and we’ll call you
How much can you afford to pay towards your debt each month?
The amount you can afford to repay towards your debt is a very important factor to consider when deciding between Debt Management or Bankruptcy.
A Debt Management Plan works on the basis that you reduce your debt payments to an amount your can afford. You then have to pay these reduced amounts until all of your debt is repaid. If the amount you can afford to pay each month is small in relation to the total debt you owe it is likely to take many years to get out of debt using this option.
A significant advantage of Bankruptcy is that if you cannot pay anything towards your debts you do not have to and you will be debt free in 12 months. If you able to make a payment then you will only have to do so for three years. As such if your objective is to be debt free as quickly as possible Bankruptcy might be a better option.
How much do you owe and to whom?
The majority of unsecured debts can be included in a Debt Management Plan. However some cannot. It is difficult to include a County Court Judgment (CCJ) in this type of debt solution. In addition you cannot include a debt with an attachment of earnings. As such if you have one or more CCJs it might not be for you.
DM4U Tip: If you owe money to HMRC then it is less likely that the Plan will be suitable for you. Normally you will have to make a separate agreement with HMRC to repay this debt within a shorter period of time (say 12 months). This will leave far less funds available to pay your Plan.
If you have CCJs, an attachment of earnings or owe money to HMRC bankruptcy might be a better for you as they can all be included in this solution.
Do you own your own home?
If you are a homeowner you may be thinking that you will need to avoid Bankruptcy because you will automatically lose your home. This is not the case. If you have no equity in your property or it is in negative equity then it is likely that you will be able to keep it. However if you do have equity in your property it might be at risk.
In comparison using a Debt Management Plan causes little or no risk to your home. Even if there is equity in it your creditors cannot force you to sell or re-mortgage to release this as part of the Plan.
DM4U Tip: In a Debt Management Plan your creditors are still allowed to take legal action against you to recover their debt. This could include applying for a charging order against your property. However if your plan is agreed and paid on time this is unlikely. For this reason if you have significant equity in your home debt management is likely to be a better solution for you than bankruptcy.
Is Debt Management or Bankruptcy better for your Credit Rating?
You may be worried that bankruptcy will affect your credit rating for ever and you will not have the option of getting a mortgage in the future. This is not the case. Bankruptcy will be recorded on your credit file for 6 years. However after you are discharged you can start repairing your credit rating. You can also apply for a mortgage.
On the other hand you might think that starting a Debt Management Plan will affect your credit rating less severely. Generally speaking however this is not correct. Once you start the Plan is likely that missed payments and default notices will be recorded on your credit file. These will remain for 6 years thus affecting your credit rating for that period of time.
Given this using a Debt management Plan because you feel it will be better for your credit rating is normally a mistake. In fact your credit rating will not be back to normal until your debts are repaid which could take many years. Having said that it is possible to get a mortgage while you are in Debt Management especially if you want to release home equity to settle your debt.
Arrange a call with a DMP Expert
Your information will be held in strictest confidence and used to contact you by our internal team only. We will never share your details with any third party without your permission.