Options for Individuals

There are two options available to individuals - either Bankruptcy or an Individual Voluntary Arrangement. Please contact Chris Brooksbank to discuss the best solution for you.

Bankruptcy

Bankruptcy can be instigated by two possible routes:

  1. An individual can make themselves bankrupt by making an application online (fee is payable)
  2. If a creditor is owed more than £5,000 then it can petition for the individual’s bankruptcy

In both instances, the bankruptcy will be initially dealt with by a Government officer, known as an Official Receiver.

However, in certain circumstances, this may be passed on to an insolvency practitioner who is then known as the “trustee in bankruptcy”.

Advantages of bankruptcy

  • Most unsecured debts are written off with the exception of debts subject to family court proceedings, court fines and student loans not included in the bankruptcy
  • Automatic discharge from bankruptcy after one year, however, any non-co-operation with either the Official Receiver or the trustee in bankruptcy may result in no automatic discharge from bankruptcy after one year
  • No creditor approval required

Disadvantages of bankruptcy

  • Individual’s assets will have to sold/value realised, including any share in the matrimonial home
  • Any surplus monthly income may result in an income payments’ order for a period of 3 years
  • The individual will be subject to certain restrictions such as incurring a certain level of credit and being able to act as Director for the period of bankruptcy
  • Detrimental effect on credit rating after discharge from bankruptcy

Individual Voluntary Arrangement (IVA)

An IVA is a legally binding agreement between an individual and their creditors to repay their preferential and unsecured debts either in full or in part.

An insolvency practitioner will oversee the IVA and is known as the supervisor.

The individual will prepare a document called the proposal which will state how they intend to settle the debts.

This will usually include details of assets and liabilities; monthly income and expenditure and an outcome statement comparing what creditors can expect to receive from the IVA as opposed to what they would receive if the individual was declared bankrupt.

In order for the IVA to be approved it requires more than 75% in value of creditors voting in favour of the proposal. In addition to creditors having the choice of whether to accept or reject the IVA they can also make modifications to the proposal.

Once accepted it is legally binding on all preferential and unsecured creditors irrespective of whether they voted.

There is no set duration or payment term for an IVA but it is common for such an arrangement to last for a period of 5 years with the individual making monthly payments for this period.

Should the individual have an interest in a property (usually the matrimonial home) then it is highly likely that the value of the equity will have to be realised in the final year of the IVA.

Notwithstanding this, IVA’s can be bespoke and tailored accordingly to circumstances.

Advantages of an IVA

  • A percentage of the debts may be written off
    Interest frozen and legal protection from the debts on approval
  • Lower costs and higher returns for creditors than bankruptcy
  • Possible variation to the proposal should circumstances change (subject to creditor approval)

Disadvantages of an IVA

  • Default of the IVA could result in bankruptcy
  • Possible longer duration than bankruptcy
  • IVA registered with credit reference agencies