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Free debt counselling, debt adjusting and providing of credit information services is available from the Money Advice Service.
We can provide advice to residents of England, Wales and Northern Ireland. If you are a Scottish resident the range of debt solutions are different and we will, with your permission, refer you to a specialist advice company that is well placed to identify the most appropriate solution for your circumstances.
Solutions for England, Wales and Northern Ireland.
Please note that the following information is given only to provide an outline of the range of solutions that may be available. It does not constitute advice and only a personal review of your circumstances with our debt adviser can help to identify suitable solutions.
What is Bankruptcy?
Bankruptcy is a formal court procedure which can free you from debts that you cannot pay.
During the bankruptcy order you are known as an undischarged bankrupt. When the bankruptcy comes to an end, usually after 1 year, you are discharged and are released from your debts.
What are the conditions to apply for a Bankruptcy Order?
If you apply (petition) for your own bankruptcy, there are no conditions, as such, but you should meet the legal definition of being insolvent. This means that your liabilities (debts) exceed the value of your assets or that you cannot meet your liabilities as and when they are due.
A creditor can apply for your bankruptcy if you owe them at least £5000.
How does Bankruptcy work?
You have to submit a petition to the Court. Either an Insolvency Practitioner or the Official Receiver will be appointed to look into your financial affairs covering the period before and after your petition is submitted. The Insolvency Practitioner or the Official Receiver takes control of your assets and may have to dispose of them to make payments to your creditors. See "What affect will Bankruptcy have on my assets?" below.
Once bankruptcy is granted you stop making payments to your creditors (apart from the exceptions below). If you have disposable income you may have to make payments to the court for up to 2 further years which will be used to pay towards your creditors.
Creditors can't take further action against you unless the debt is secured against your home or other property.
At the end of bankruptcy you are discharged and are freed from the debts.
How long does Bankruptcy last?
Bankruptcy normally lasts for 1 year. However, if you have surplus income you may be required to make payments out of this for up to 3 years. If you have no disposable income or your income is made up of mainly benefits then you probably won't have to make regular payments.
Are there any debts that can't be included in Bankruptcy?
Student loans, fines and maintenance cannot be included in your bankruptcy. Secured creditors, such as those that have a mortgage or other charge on your home are not included. If you have received any benefit overpayments these will not be included in your bankruptcy if the provider can recover the overpayment from other further benefits you receive during your bankruptcy.
How much does a Bankruptcy Petition cost?
You need to pay the court fee which is £180. You may also have to pay a deposit to the Official Receiver which is £525.
Can I apply for credit if I am bankrupt?
You can still apply for credit, but if you apply for £500 or more you must tell the lender that you are bankrupt. If you don't you will be committing an offence.
How will Bankruptcy affect my job?
Your job could be affected. Certain occupations cannot be performed if you are bankrupt, for example, accountants, solicitors, members of the armed forces, police etc. If you are in any doubt about whether your job will be affected by Bankruptcy you should ask your Human Resources/Personnel department or check your contract of employment.
If you are a company director you will need to get the court's permission to continue in the role.
If you are self-employed and trade under a name which is different to the name disclosed in your Bankruptcy, you must tell all those you do business with that you are bankrupt.
What affect will Bankruptcy have on my assets?
During bankruptcy you lose control of your assets. Certain items can be kept by you if their value is reasonable and is no more than the cost of a reasonable replacement, but you have to tell the Insolvency Practitioner or Official Receiver and you will be told if you can keep them.
Examples of such assets are:
• Tools, books, vehicles and other items of equipment, which you need to be able to perform your job.
• Clothing, bedding, furniture, household equipment and other basic items you and your family need in the home.
What will happen to my home if I am Bankrupt?
If you own your own home your interest in the home will form part of your assets which will be controlled by the Official Receiver of Insolvency Practitioner.
Your home may need to be sold to go towards paying your debts, but this would usually only be done if it is the only way to release money to your creditors.
If your spouse or children live with you, it may be possible to delay the sale until the end of first year of bankruptcy.
If your home cannot be sold a charging order may be obtained but only if your share of the equity is worth more than £1,000.
If you do have equity in the property it may be possible for your partner, a friend or relative to buy your share of the equity. This will stop the Official Receiver selling your home.
Other points to note about Bankruptcy.
You need to co-operate with the Official Receiver during your Bankruptcy. If you act dishonestly or irresponsibly before or during the Bankruptcy you could have a Bankruptcy Restrictions Order made against you. This can last up to 15 years and places restrictions against you similar to those in place during the Bankruptcy.
If Bankruptcy is granted it will be entered onto a public register and will be advertised in the London Gazette and possibly in your local paper.
If your income or assets increase you must tell the Official Receiver.
Debt Relief Order
What is a Debt Relief Order?
A debt relief order is a simpler style of bankruptcy.
It can only be arranged through an approved intermediary who will check that you meet the conditions for a Debt Relief Order.
What are the conditions for a Debt Relief Order?
• Your debts must be less than £20,000
• Your disposable income must be less than £50 per month
• Your assets must be less than £1000 (although there are some exceptions to this for example, the value of a car up to £1,000, and clothing and furniture).
You CANNOT have a Debt Relief Order if any of the following apply to you:
• You are a home-owner (even if you don't have any equity in your property).
• You have an existing bankruptcy order
• You have an Individual Voluntary Arrangement in place
• You have had a Debt Relief Order in the last 6 years
• You are subject to any bankruptcy restrictions
If you do meet the conditions, you will complete the required form which is then submitted to the Official Receiver and the Debt Relief Order is granted.
What happens during a Debt Relief Order?
During the Order, the creditors which are listed on your application form cannot take action against you. At the end of the Debt Relief Order you are "discharged" and the debts within your order are written off.
How long does the Debt Relief Order last?
The Order lasts for 1 year and once it has ended your debts are written off.
Are there any debts that can't be included within a Debt Relief Order?
Student loans, fines and maintenance cannot be included in a Debt Relief Order.
How much does a Debt Relief Order cost?
You need to pay the court fee which is £90. You can pay this over 6 months but you can't apply for the Order until you've paid the full £90.
Can I apply for credit if I have a Debt Relief Order?
You can still apply for credit, but if you apply for £500 or more you must tell the lender that you are subject to a Debt Relief Order. If you don't you will be committing an offence.
How will it affect my job if I have a Debt Relief Order?
As it is a form of bankruptcy, your job could be affected. Certain occupations cannot be performed if you are bankrupt, for example, accountants, solicitors, members of the armed forces, police etc. If you are in any doubt about whether your job will be affected by a Debt Relief Order you should ask your Human Resources/Personnel department or check your contract of employment.
If you are a company director you will need to get the court's permission to continue in the role.
If you are self-employed and trade under a name which is different to the name disclosed in your Debt Relief Order, you must tell all those you do business with that you are subject to a Debt Relief Order and the name under which it was granted.
Other points to note about Debt Relief Orders.
You need to co-operate with the Official Receiver during the time the Debt Relief Order is in force. If you don't the order could be withdrawn. Also, if you act dishonestly or irresponsibly before or during the Debt Relief Order you could have a Debt Relief Restrictions Order made against you. This can last for up to 15 years and places restrictions against you similar to those in place during the Debt Relief Order.
If a Debt Relief Order is granted it will be entered onto a public register.
If your income or assets increase during the Debt Relief Order you must tell the Official Receiver.
Individual Voluntary Arrangement
What is an IVA?
An IVA, or Individual Voluntary Arrangement is a formal, legally-binding way of dealing with your debt. It may be suitable for you if you cannot repay your debts in full but do have some surplus income which you are able to pay to your creditors. An Insolvency Practitioner acts on your behalf and presents a proposal to your creditors. If the proposal is accepted your unsecured creditors are prevented from taking any further action against you, as long as you keep to the terms of the IVA. At the end of the IVA your remaining debts are written off. However, there are a number of important points to consider in deciding whether an IVA is suitable for you. Please read on!
What are the conditions to apply for an IVA?
The main criteria in applying for an IVA is that you are insolvent - which means that your debts are greater than your assets or you can't meet your repayments as and when they fall due.
Legally, there is no minimum amount of debt or minimum amount of disposable income. However, the Insolvency Practitioner that we use may be able to help if your debt level is £7,000 or more and you have a monthly disposable income of £70.
The IVA proposal has to be accepted by your creditors. This means that there has to be 75% agreement from creditors to accept the IVA. This is not 75% by number of creditors but by value of your debt. For example, if you owe £20,000, the creditors that are owed at least £15,000 have to vote to accept your proposal.
What happens during an IVA?
The Insolvency Practitioner will review your circumstances including the level of debt, the value of your assets and how much disposable income you have. If appropriate, he will present a proposal to your creditors which will identify the level of payments you will make over the 5 years as well as what contributions you are able to make from your assets. Creditors will consider what amount of money they will receive over the 5 years and compare this to the amount of debt that you owe. This is called the "creditor dividend". Your Insolvency Practitioner will also investigate whether you have any assets that can be sold to repay your creditors, for example, shares, savings, boats, caravans, etc.
There is no set minimum dividend that must be achieved, but it may be possible to successfully arrange an IVA with just a 10% dividend. For example, if you owe your creditors £20,000 in total, then they would be looking to receive around £2,000 back over the term of the IVA.
However, the level of the dividend that creditors are prepared to accept will vary in individual cases.
What will happen to my house if I have an IVA?
The Insolvency Practitioner will take into account the amount of any equity in your property. He/she will investigate whether you can release this equity, for example, if your partner can buy your share. If so, this amount will be repaid to your creditors. The Insolvency Practitioner may ignore the value of your equity if it is small, for example £5,000 or less.
In the final year of your IVA, you may be required to re-mortgage to release the equity in your property for repayment to creditors. If you can't do this then you may have to continue your IVA payments for a further year.
How long does an IVA last?
An IVA usually lasts for 5 years although it could be extended for a further year as mentioned above.
Are there any debts that can't be included within an IVA?
Student loans, fines and maintenance cannot be included in an IVA. Secured debts are not included.
How much does an IVA cost?
The fees for an IVA are built into the plan. There are 2 types of fees, the nominee fee and the supervisory fee. The nominee fee covers the Insolvency Practitioner's fees in reviewing your circumstances, arranging meetings with your creditors and preparing the proposal. It is taken out of the payments you make into the IVA. If you cancel the IVA before this fee is paid then your creditors won't have received anything and the whole amount will still be outstanding.
The supervisory fee is an ongoing fee deducted from your regular payments. This will vary between Insolvency Practitioners.
As both the nominee and supervisory fees are built into the IVA they are deducted from the money that is repaid to your creditors and are therefore agreed by your creditors before the IVA starts.
Can I apply for credit during the term of the IVA?
No, you cannot apply for further credit whilst you have an IVA in place unless your Insolvency Practitioner agrees.
How will it affect my job if I have an IVA?
There may be less of an impact on your job if you have an IVA, than with bankruptcy, for example. However, there are some occupations whereby it may not be appropriate to enter into an IVA because it will restrict your ability to continue in the role. Typically, these will include jobs like accountants, solicitors, directors of a charity, Justice of the Peace, etc. We would always recommend that you check your contract of employment.
Other points to note about IVAs.
You will be required to stick to a strict expenditure regime during the term of the IVA. If you can't keep to the terms of your IVA, your Insolvency Practitioner may be able to get your creditors to alter the repayments. However, if they won't accept revised terms then the IVA mail fail or you may be made bankrupt.
If your IVA is accepted it will be entered onto the Individual Insolvency Register which is held and updated by The Insolvency Service. Your IVA will also be recorded on your credit file for a period of 6 years.
If your income or assets increase during the IVA you must tell the Insolvency Practitioner as part of all of them may have to be paid to your creditors.