I read an interesting article on LinkedIn recently which argued that in some cases it would be better to stop paying your credit cards. While this may, when taken out of context, appear to be irresponsible advice, in fact the writer’s argument was that when a person faces financial difficulty and/or ruin, sometimes the best option for them to take is to stop repaying debts (despite the inevitability of a credit card or other loan creditor pursuing them) in order to keep food on their family’s table and a roof above their heads.
This made me think about a number of my clients who have come to me in the last year for advice on how to deal with overwhelming liabilities and to see what can be done about them. In all cases these clients wanted to avoid an insolvency process (personal or business) at all costs. Actually, having made a thorough analysis of their situations, in most cases we concluded that the best option for them was to enter into an insolvency process.
Many people, especially individuals, still attach a great stigma to the failure associated with bankruptcy. It might surprise readers to know that many of the world’s most successful (and rich) businessmen and women have experienced some form of insolvency in the past. What they learned is that insolvency is not necessarily the end, but in many cases it is the beginning.
Should you avoid insolvency?
A client recently came to me for advice asking me to help him avoid insolvency. By the end of a three hour meeting we had concluded that the best thing he could do for himself, for his family and, in fact, for his creditors was for him to enter into an insolvency process (preferably an individual voluntary arrangement, but if necessary bankruptcy). My client had arrived very keen to do “the honourable thing” and ensure that his creditors were paid (if not in full, then substantially more than they would have been paid (in an insolvency). However, his debts were so substantial that this would have required each of his creditors to stick with him throughout a restructuring and refinancing process – with no payments – while he found new employment in order to pay them back over a period of many, many years.
Having spoken to two of his creditors who were within a gnat’s whisker of issuing court proceedings against him, it was clear that they were not willing to wait more than about a year to be paid (whatever the amount they were promised would be paid over time). If even one of his creditors lost patience with him then they would take their own action to secure their own position, which would collapse a house of cards and lead to a bankruptcy anyway.
Do you always have to pay it all back?
What was clear was that the creditors were not so bothered about recovering their debts in full (although they would not have argued if this were offered to them) but they wanted to conclude matters as quickly as possible, and at the minimum of cost and inconvenience. This shift in priorities showed that in fact, the short term pain of an insolvency process would provide certainty for all of the creditors, bind all of the creditors to the process so that none could scupper the process by taking their own action and also allow my client (after a short period in insolvency) to then take himself and the experience he had gained, forward with a new business – which he would hopefully make a success of this time.
In the case of a bankruptcy this could happen as quickly as a year and in the case of an individual voluntary arrangement might last as long as five years. With this client, we have not yet decided what to do next. My client has to think long and hard about his options, but the fact is he has more options that he thought and he has more opportunities than he imagined.
What is the actual problem?
Sometimes it is the uncertainty of debts and financial distress that cause us worry and inertia so that we do not do anything; thinking that by doing nothing, somehow matters will stand still. This could not be further from the truth. In fact if you want to be able to control at least in part your destiny and there are issues looming on the horizon that could have a big impact on your finances, then the best thing you can do is take advice about what options you have from someone like me. You may be surprised at just how rosy the future could look. In the vast majority of cases, it really is not the end of the world.
For advice on debt, bankruptcy or insolvency, feel free to give us a call. Bray & Bray have three main offices across Leicestershire, phone or pop in to talk to our solicitors.