Insolvency is a legal debt solution to write off your debts
In a nutshell Insolvency simply means that you’re unable to repay your debts at the required time.
Under the umbrella term of insolvency are numerous debt solutions:
- Bankruptcy – Which is suitable if you have no reasonable prospect of repaying your debts
- An Individual Voluntary Arrangement (IVA) – Allows you to make lowered repayments over the course of either 60 or 72 months
- A Debt Relief Order (DRO) – Which can write off your debts if you have a low disposable income, limited assets and a low level of debt
Each of these debt solutions has set qualifying requirements, as detailed on this page. Usually, insolvency is only suitable where your debts total to more than your assets.
If you reside in Scotland, there are different insolvency debt solutions, as follows:
- Sequestration – The Scottish equivalent to bankruptcy
- A Trust Deed – In several ways a Trust Deed is equivalent to an IVA
- A Minimal Asset Process bankruptcy (MAP) – A form of insolvency available to those with no disposable income and limited assets
Worried about debts that won't go away?
FAQs – Insolvency
What is ‘Insolvency’?
What is the Individual Insolvency Register (IIR)?
Is my pension at risk?
Is an IVA preferable to a Bankruptcy?
Will I have to sell my car and personal possessions?
What is a ‘Statuary Demand’?
What is a ‘Bankruptcy Petition’?
Can I oppose bankruptcy?
What impact will bankruptcy have on me?
What will happen to my family home?
Personal insolvency is a legally binding agreement between creditor and debtor. There are several personal insolvency types, including:
• Debt Management Plan
• Administration Order
• Individual Voluntary Arrangement
• Debt Relief Order
• Bankruptcy Order
The IIR is an online record people who have active individual insolvencies, bankruptcies and debt relief restrictions.
No. Pension assets have been shielded from insolvency claims since 29th May 2000. However you should note that the regular income that you’re already receiving from any pensions will be liable for an income payments order.
An IVA can help you to avoid bankruptcy and keep hold of particular assets. The advantages of an IVA in comparison to Bankruptcy include:
• Not automatically losing control of your assets
• Delaying the forced sale of your home
• Staying in business
• Once your IVA is approved all of your unsecured creditors are committed to the terms of the IVA
In a bankruptcy, it will depend on their value. In an IVA, it will be down to negotiation with your creditors. Generally there’s a good chance that your creditors will agree to let you keep your vehicle, especially if it’s essential to your work.
A ‘Statuary Demand’ is the first stage of bankruptcy proceedings. This legal document is served from creditor to debtor, acting as an official payment demand for a debt that exceeds £5,000. If the demand isn’t settled within 21 days, then the debtor is legally deemed as being unable to repay the debt. The creditor will then be allowed to petition to make the debtor bankrupt, however this is optional on the part of the creditor. A debtor is also allowed to challenge the Statuary Demand within 18 days.
A bankruptcy petition is a request made to a court of law to seek your bankruptcy. You can petition if you’re unable to meet the demands of your debts, or your creditors can petition.
If it is found that you can’t pay your debts, a bankruptcy order will then be issued.
If one of your creditors has petitioned for bankruptcy, there are a limited number of exceptions that could allow you to oppose the bankruptcy. Seek legal advice.
Once a bankruptcy order is made, your estate will be managed by ‘Trustees in Bankruptcy’. You will be legally obliged to provide the Trustees with everything they need to process your estate (including books, paperwork and all other records).
If, after the bankruptcy order is made, you acquire assets or income then you must contact your Trustees to update them. Failing to do so is a criminal offence.
During the 12 months of bankruptcy you are deemed as being ‘undischarged’, and should not:
• Apply for credit of more than £500 prior to informing them of your bankruptcy
• Act as director within a limited company, unless you’ve sought and been granted permission from the Court
• Act as a Trustee of a charity
• Trade using a business name that’s different to that which you declared at bankruptcy (unless you inform the person with whom you trade of your bankruptcy status)
As your home is an asset, it will be included in the bankruptcy proceedings (even if the home is jointly owned). If the property is your ‘sole or principal residence’, the Trustee will have to adhere to a time limit of 3-years to sell your home.