There are a number of forms of personal insolvency. The most appropriate for an individual will depend on whether they are an individual, sole trader or a partner in a partnership and the ability to pay creditors.
Personal insolvency is also a very emotive subject as it generally involves the family home and assets that have a sentimental value. For debtors considering making themselves bankrupt it can be difficult to discuss with anyone.
The types of personal insolvency are as follows:
- Individual Voluntary Arrangement (IVA)
- Debt Relief Order (DRO)
- Debt Management Scheme (DMS) – not a formal insolvency process
- Partnership Voluntary Arrangement (PVA)
- Partnership Administration Order
For further advice and assistance regarding any aspect of the above insolvency procedure, please contact Lameys. We will discuss, free of charge, any further implications and alternatives with you.
Becoming bankrupt can provide a fresh start (subject to certain restrictions) and relieves you of the burden of your debts. It is a formal court procedure which can be commenced by yourself (debtors petition), a creditor who is owed more than £750.00 (creditors petition) or by a Supervisor in a Voluntary Arrangement.
The Official Receiver will deal with the administration of the Bankruptcy but this may be transferred to an IP who will act as your Trustee. The majority of your assets will be caught by the Bankruptcy estate and will vest in your Trustee. However, there are certain assets which will be excluded, which include; reasonable household furniture, tools of the trade and pension policies. Dependant on your current income you may also be subject to an Income Payments Order making contributions from your income for a period of three years.
Bankruptcy usually lasts for twelve months, although this time may be extended in exceptional circumstances where you are subject to a Bankruptcy Restrictions Order. Once you have exceeded the twelve months (subject to a BRO) you will receive your automatic discharge, and will be freed from bankruptcy.
Entering into Bankruptcy should only be taken as a last resort and it is recommended that you contact an IP at the first sign of financial difficulty as other alternatives may be available to you.
An IVA is an alternative to Bankruptcy and is effectively a contract between a debtor and their creditors. The terms of the proposal to creditors may be very flexible, but creditors will reasonably expect their prospects of recovering money to be at least as good as in a Bankruptcy.
The Insolvency Practitioner (IP) you instruct is likely to help you with your proposal to creditors and, initially, will be known as your “Nominee”. If the creditors accept your proposal, an IP then becomes the “Supervisor” of the arrangement.
The IVA proposal will be voted on by the creditors at a creditors’ meeting. Generally, if over 75% by value of the creditors who are represented at the meeting (in person or by proxy) vote in favour, the IVA will be implemented. Creditors may put forward changes to the proposal, but they cannot impose them on you – you can decide whether or not to accept them.
An IVA gives you an opportunity to avoid Bankruptcy and potentially retain assets or your business which may be lost if you were to be made Bankrupt. Lameys are able to assist in the preparation of a Voluntary Arrangement proposal and advise on what offer should be made to creditors.
A relatively new procedure introduced on 6 April 2009. A DRO can really be described as a ‘baby’ Bankruptcy. The procedure was introduced for people with low level debts which they could not afford to repay, where Bankruptcy was too much of an extreme measure. This procedure will not however be available to many people as certain restrictions apply. To qualify for a DRO the following criteria need to be satisfied:
- the debtor is unable to pay his/her debts;
- the debtor’s total unsecured liabilities must not exceed £15,000;
- the debtor’s total gross assets must not exceed £300 (this includes houses so homeowners will not be eligible); the debtor will usually be allowed to keep a car if it is worth less than £1000
- the debtor’s disposable income, following deduction of normal household expenses, must not exceed £50 per month;
- the debtor must be domiciled in England or Wales, or in the last 3 years have been resident or carrying on business in England or Wales;
- the debtor must not have previously been subject to a DRO within the last 6 years;
- the debtor must not be involved in another formal insolvency procedure at the time of application for a DRO.
Debt relief orders can only be completed by an approved intermediary and competent authorities. Approved intermediaries will be mainly experienced debt advisors attached to debt advice organisations such as a the Citizens Advice Bureau.