A Guide to Personal Insolvency: An Introduction

When you find yourself in financial difficulty, it can be extremely stressful. That’s why when you first begin to experience money issues, it’s critical to seek counsel from the best practitioners. A personal bankruptcy firm like Richardson Lissack may assist you in determining what choices are accessible to you by getting advice early. 

There are frequently more alternatives available that, whether you’re a debtor or a creditor, might leave you in a better position than you originally thought.

Regardless of your financial situation, you can rest confident that the Moore South Restructure and Insolvency team has the understanding and expertise to assist you in obtaining the greatest feasible result.

Our Restructuring and Insolvency team has extensive expertise dealing with all forms of insolvency, both corporate and personal, giving them the knowledge, they need to provide discreet expert advice based on their understanding of the most up-to-date bankruptcy legislation as well as the numerous real instances they have handled.

Personal bankruptcy is a legal procedure that allows you to restructure your debts and discharge some or all of them. Personal insolvency is defined as when you are unable to pay your bills when they come due. The most common type of personal bankruptcy is declared, but it isn’t always the best solution for those who require assistance, or even for creditors wanting payment. So, what are the alternatives? Our summary below summarizes each alternative.

Options for Personal Insolvency

Depending on a person’s situation, five distinct personal bankruptcy alternatives may be explored:

In cases where a person has only a few creditors that they wish to pay off in full over a reasonable period, an Informal Arrangement is appropriate. Such arrangements are subject to negotiation with each creditor and are not legally enforceable, so creditors can seek enforcement at any moment during the arrangement.

The Debt Management Plan (DMP) is a method for a debtor to negotiate with their creditors informally regarding how to pay their debts over a reasonable length of time. They’re most often implemented when debts must be paid off in small, regular instalments or when the debtor requires time before making payments. The debtor usually works with an approved debt management firm to create the plan, and it is administered by that firm.

This method allows creditors to trust that they will receive the funds they are owed, even if it takes longer than originally anticipated, and relieves debtors of the worry of managing their debts. DMPs are not legally enforceable and do not prevent creditors from pursuing enforcement action against a debtor.

A voluntary Individual Voluntary Arrangement (IVA) is a formal written agreement between a debtor and their creditors that has the same force of law as a bankruptcy. 

IVAs are handled by competent insolvency attorneys, just like us. Unlike bankruptcy, the individual has greater freedom since they can pick their counsellor and propose a deal that is most suited to their situation. IVA may be a more cost-effective alternative to bankruptcy for individuals who are asset wealthy but cash poor.

For example, if a debtor has a property with equity that can be re-mortgaged, such as a home, this cash may be utilized over a set length of time to pay off the debts according to the agreement. It’s worth noting, though, that each situation is unique and that each IVA must be written to suit the requirements of both the debtor and their creditors, who may have different demands.

The Debt Relief Order (DRO) is a debt relief order that allows individuals owing less than £20,000 with no significant assets (such as being a home-owner) and little surplus income to deal with their debts by writing off the debts without going bankrupt. They’re comparable to bankruptcy but are known in the business as “bankruptcy lite.”

To obtain one, debtors must deal with both the UK Government’s Official Receivers agency and an authorized debt counsellor.

There are two basic ways to declare bankruptcy: Individual and Business bankruptcies. -This is the most well-known type of personal bankruptcy, but it’s a misconception that you’re “bankrupt” simply because you can’t pay your bills. Bankruptcy is an official legal procedure governed by the courts, and someone becomes bankrupt only if the Court issues a Bankruptcy Order against them. Documents informing them about the upcoming court hearing are given to individuals in advance of the hearing, making it extremely unlikely that someone could be declared bankrupt without being aware of it.

You must appear before the Official Receiver if you have been declared bankrupt by a creditor or yourself. You also become subject to several legal limitations. Being declared bankrupt is not for everyone, and it may have significant repercussions on an individual’s financial abilities. It also prevents you from being a competent professional or running a business until you are discharged (often 12 months after bankruptcy).

If you have any queries about personal or company bankruptcy, or if you wish to talk about anything we’ve written in this essay, why not contact Richardson Lissack?