PERSONAL DEBT SOLUTIONS
There are two types of insolvency process applicable to individuals: Individual Voluntary Arrangement and Bankruptcy
Individual Voluntary Arrangement (IVA) An IVA is essentially a contract between an insolvent individual and his or her creditors which allows the individual to delay or compromise the payment of debts. An IVA is highly flexible and can be adapted to meet the needs of any person, whether a sole trader or in employment. In essence, an IVA will replace the terms of the person’s existing contracts with his or her creditors (e.g. to make a minimum credit card payment each month) with new terms as set out in the IVA proposal. For example, the proposal might require the person to pay a fixed monthly sum into the arrangement for a period of three years so that creditors receive a minimum dividend. The return for creditors from an IVA must be better than they would otherwise receive from another process such as bankruptcy. It is important to remember that an IVA is a proposal to creditors and the term and amount of payments can vary pending on the circumstances and furthermore can potentially be modified by creditors. We can assist you and carry out a review of your affairs to ascertain whether an IVA is appropriate for you. We can then help in the drafting of the proposal and in obtaining the support of creditors.
There are times when bankruptcy is the most appropriate way forward for a person who is in financial difficulties, as it enables a fresh start to be made without the burden of debt. It is also potentially more appropriate than an IVA or a Debt Management Plan.
A creditor owed at least £5,000 may present a bankruptcy petition to the Court, and if the debt remains unpaid at the date of the Court hearing, the Court may grant a bankruptcy order in respect of the person.
Once a bankruptcy order is made, a trustee will be appointed who will realise the bankrupt person’s assets and distribute the proceeds to creditors. We are regularly asked by creditors to take appointments as a trustee in bankruptcy. We locate and realise assets falling into the bankruptcy estate and maximise the return to creditors.
A person is discharged from their bankruptcy normally after a 12 month period and their liabilities after effectively extinguished. However, an individual who has been declared bankrupt is required to cooperate with their trustee and if that is not the case then the automatic discharge can be suspended.
An individual can of course voluntarily take action and self-petition. Before taking such steps, professional advice should be sought from an Insolvency Practitioner and the consequences given serious consideration. Currently the cost to self-petition is £680.
If you have very little in the way of assets and the amounts owed to your creditors is below £20,000 you can avoid bankruptcy altogether. You may be able to apply for a Debt Relief Order which will give you an opportunity to restructure your finances. There are certain restrictions, for example you must have minimal spare income and you must not be a home owner.
For further information about Personal Debt Solutions, please contact your local office Partner.