Increasing Credit Card Debt Problems in the United Kingdom

With the recent increase in the number of people in the UK seeking financial assistance from the many help groups in the United Kingdom, many financial analysts are looking into the reasons why consumers are seeking help. Some consumers run into problems with solvency and are forced to declare bankruptcy. This can cause countless problems in the future when this person tried to apply for anything from a car loan to a job with a large corporation. Many large companies are now pulling credit reports as part of the job screening process.

However, for others, becoming insolvent is the only choice. Thus, a recent report put out by the Bank of England shows that there are many forms of insolvency and the remedy for each one is slightly different. They are as follows:

- Bankruptcy
- Individual Voluntary Arrangement (IVA)
- Debt Relief Orders

Each of these is important to understand as the results of declaring each one will be different. For the particular case of each individual person, one option may be better than the other.

Bankruptcy is the most commonly known form of financial insolvency, and many people claim this status. It is the most commonly used path to escape from debt that has become overwhelming. The benefit is that the debt is wiped clean, but in the process, one loses every asset of value. Hiding assets of value may be punishable by imprisonment. People who declare bankruptcy have lost their houses, cars, or other necessary assets. This option should only be pursued in the event of severe debt problems.

Individual Voluntary Arrangement, otherwise known as IVA is the next form of financial insolvency. In this scenario, the individual person and his or her own creditors seek the assistance of an insolvency professional. This form of arbitrage involves the plan to be made between a person and the credit card companies where the debts are in fact paid. In return for a promise to pay, the individual person will not have to declare bankruptcy, and often the interest rates will be frozen for a period of time. These declarations typically last from one to five years, with the amount being left over after five years being written off. For many people who are deep in credit card debt, the IVA option may be the best. The individual does not lose his or her home, and bankruptcy does not have to be declared.

The final form of financial insolvency discussed by the recent report from the Bank of England is debt relief orders. This form of insolvency is a newly introduced method for certain people to pursue. Put into place in April of 2009, these orders will allow some groups of consumers to have their debts written off after repayment has been made on the principle amount. Some people may be able to use the value in certain assets to pay off the debt. This only works for people who have minimal debt loads and the asset base to pay them off. Bankruptcy is avoided, and the debts are paid off at a rate acceptable to both parties involved.