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UK insolvency practitioners’ tools under the Insolvency Act 1986 and Enterprise Act 2002

There are two principal formal processes in the event of personal insolvency – bankruptcy or an Individual Voluntary Arrangement (IVA). Alternatively, we may be able to help you settle matters on an informal basis.

Personal bankruptcy

Under UK bankruptcy law, this requires an application to the court — filing for bankruptcy. Your financial affairs are put in the hands of the Official Receiver who will deal with all your creditors and realise those of your assets that the law says are in your ‘bankruptcy estate’.

These assets will normally comprise any savings or investments, your interest in your home, probably your car and any other personal assets of value not within your reasonable domestic needs. If you run a business, it is likely that the Official Receiver will close it down and sell its assets. However, if you are self-employed, any assets necessary for your work will not be sold. If the Official Receiver considers that you are able to make payments from your income to your creditors, he may require you to do so for a period of three years.

As a bankrupt, you cannot act as a director of a company, nor can you trade personally under a business name other than your own.

Individual Voluntary Arrangement (IVA)

This is more flexible alternative to bankruptcy and is often put in place to avoid you having to sell the family home. It is in effect a legally binding contract between you and your creditors and is managed by an insolvency practitioner known as a Supervisor. It carries less stigma than bankruptcy. For example, it is not advertised in the local newspaper and you remain in control of your assets subject to the terms of the scheme. It does, however, usually require a greater financial commitment on your part than bankruptcy. This commonly includes making regular payments into the scheme over a five-year period — possibly also a requirement to release some equity from your property by way of a remortgage at or near the end of the scheme.

The end result of either bankruptcy or an IVA is that you are released from all your debts and can make a fresh start.

Case study of an Individual Voluntary Arrangement