Bankruptcies Soar and Half are Homeowners

Latest figures released by the Insolvency Service show bankruptcies are soaring with an increase of 19% compared to the same period last year; most of the increase has been created by homeowners prompting calls for longer term loans to reduce payments.

Is taking out a longer term loan really the answer as it means staying in debt for longer and paying substantially more interest? The answer is a difficult one for many homeowners already caught with high monthly payments on their home loan and finding remortgaging increasingly difficult with tighter conditions for approval and reduced credit available generally.

This explains why so many homeowners have turned to Individual Voluntary Arrangements or IVA’s as a means of reducing their overall debt burden and getting their monthly payments down to a more realistic level of commitment. While the number of bankruptcies has risen by 19% compared to this time last year, the actual number of homeowners seeking an IVA has risen by a staggering 34% according to leading insolvency practitioners, KPMG.

Will the trend continue to rise?

With scant signs of recovery in the housing market the outlook for the rest of 2009 looks bleak for homeowners sitting on negative or very low levels of equity while struggling to make payments on credit cards and other unsecured debt. Turning to an IVA looks like a realistic alternative which will allow people struggling financially to remain in their homes and emerge clear of their debts after a five year period but this is only part of the equation.

The introduction of Debt Relief Orders (DRO’s) will also fuel the increase in the numbers of homeowners seeking help; a DRO allows for the write-off debts up to £15,000 and avoids the need for full bankruptcy which would mean the loss of their home.

Whether a homeowner should consider bankruptcy, free IVA or DRO is a matter not to be taken lightly and professional advice should be sought before taking any action.

Useful links

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