Personal Insolvency is a situation that can affect many people and there are a number of different processes for dealing with personal debt. In addition to the methods outlined below, there may be other more suitable options such as debt managment plans, which is why it is important to seek professional advice.

Individual Voluntary Arrangement

An Individual Voluntary Arrangement (IVA) is a flexible procedure that enables an individual to propose to creditors a composition to settle their debts. This flexibility allows an agreement to be proposed where creditors can consider whether to accept a sum of money to settle the debts due to them. Creditors vote on whether they wish to accept the proposal made to them or not.

IVAs may involve delaying or reducing debt payments, capital restructuring, or an orderly disposal of assets. The proposed IVA requires the approval of at least 75% in value of the unsecured creditors. Once approved, it is legally binding on the individual and all their unsecured creditors, provided they received notice of the IVA, whether or not they voted in favour of it.

The scheme is proposed with the help of a Licensed Insolvency Practitioner who initially acts as Nominee to assist the debtor in proposing and preparing the arrangement. Once approved, that Nominee becomes the Supervisor who ensures the arrangement proceeds in accordance with the proposals.

An IVA based on payments from income alone usually lasts up to five years.

Bankruptcy

Bankruptcy is a formal court process whereby an individual can petition the court or the Bankruptcy Adjudicator at the Insolvency Service for relief from debt or an unsecured creditor can likewise petition the court. A bankruptcy petition can only be issued by a creditor once a demand for payment has been made or the court has ordered that the monies are due. An individual can now apply on-line to make themselves bankrupt via the Insolvency Service website.

If a creditor is making a person bankrupt then they must present a bankruptcy petition and the court then sets a date for the hearing of that petition. At that hearing the court may make the person bankrupt, dismiss the application or adjourn it for more evidence to be put before the court or for an individual to be given further time to pay.

Bankruptcy releases an individual from their liability to repay debt, but not secured debt. In some cases, this may be the best solution. Provided an individual cooperates with either the Official Receiver or a private Trustee in Bankruptcy then they should receive their discharge from bankruptcy on the anniversary of the making of the Bankruptcy Order.

Once a Bankruptcy Order is made the creditors can decide whether the matter stays with the Official Receiver or whether they would like a more proactive Trustee to be appointed to take control of all the bankruptcy assets and claims.  Any assets realised must be used to settle firstly the costs and expenses of the Bankruptcy and then the sums owed to creditors. 

We have a number of partners who specialise in both less contentious and more contentious high-profile bankruptcies and IVAs. We offer a free initial consultation to debtors or creditors who may be considering their options in relation to bankruptcy or IVA. Please contact Louise.Brittain@wilkinskennedy.com in the first instance.