Personal Insolvency
When we use the term “personal” this will apply to an individual person and will also include a sole trader who is not trading through a limited company. If you have traded using a limited company or in a partnership see the corporate information pages.
“We will help to minimise the impact an individual’s insolvency may have on their financial affairs.”
There are times when, as an individual, the pressure of debt can make you feel that it is impossible to solve your financial problems.
However, believe it or not there will always be a solution, although you may not like that solution. Our advice is always aimed at ensuring a fair outcome both for you as an individual and for your creditors.
Administration Order
Debt Relief Order
Bankruptcy
Administration Order
An Administration Order is a Court Order which freezes your outstanding debts at the date of the Order. You would then simply make an affordable monthly payment to the Court, and the Court then distributes that money on a pro-rata basis amongst your creditors.
In order to be eligible to apply to the Court for an Administration Order you must have:
- at least one County Court (or High Court) Judgement issued against you;
- owe money to least 2 creditors; and
- your total debts must be less than £5,000.
You continue paying the Court until all the debts have been paid in full. The Court adds costs of 10% so debts of £5,000 can be paid off for a total amount of £5,500 – this is significantly less than the potential interest charges and monthly payments are made at a level you can afford. An Administration Order provides protection for an individual whilst allowing them to repay the total debt in full at a fairly low cost.
We will be happy to provide you with advice on the suitability of an Administration Order.
Debt Relief Order
A Debt Relief Order (“DRO”) operates in a similar way to bankruptcy. You need to satisfy certain criteria to be able to apply for a DRO:
- you must be unable to pay your debts;
- your total debts must not exceed £15,000;
- your total assets must be less than £300; and
- your disposable income, after normal domestic expenses, must not exceed £50.
There are other criteria, but these are the main ones. You make an application on-line for the DRO, and if approved, your debts are frozen and you do not need to make any payments towards them. You do have credit and other restrictions imposed on you (similar to bankruptcy) but these are lifted after 12 months. A DRO is a very good solution for someone with relatively uncomplicated financial affairs, but who cannot pay back their debts.
Bankruptcy
Bankruptcy is a formal Court-related process of dealing with debts that an individual cannot pay. Bankruptcy only applies to individuals and must really be thought of as an option of last resort when all other options have been considered. It can however be a very clear and straightforward way of dealing with your financial affairs.
There are two routes into bankruptcy:
- Debtor’s petition – this is where you decide to make yourself bankrupt, without waiting for anyone else to force it on you; or
- Creditor’s petition – this is where a creditor petitions the Court for you to be made bankrupt. A creditor cannot petition for your bankruptcy unless they are owed at least £750.
Either way, the Court will decide if you are insolvent and if you are, it will make you bankrupt. A person called the Official Receiver is immediately appointed to deal with your bankruptcy and is known as your Trustee in Bankruptcy of your estate. At a later stage, an Insolvency Practitioner may be appointed as the Trustee in place of the Official Receiver.
The Trustee’s job is then to turn your assets into cash and pay creditors after costs. Your assets will include your interest in any equity in your house, and it may mean that your house would have to be sold at some point, although this is not inevitable.
Whilst you are an undischarged bankrupt, various restrictions will apply to you, the main ones being that you cannot obtain credit of more than a total of £500 without saying that you are bankrupt, and you cannot be a director of a limited company or be involved in the promotion, formation or management of a limited company.
You would normally be expected to be discharged from bankruptcy within 12 months of the date of your bankruptcy order, although sometimes this can be earlier.
This sounds quite punitive and for someone who has been ‘naughty’ it is intended to be so. However, there are circumstances when bankruptcy is sometimes the best way to deal with an individual’s debts and it will depend entirely upon an individual’s circumstances.
We have many years of experience in dealing with personal insolvency matters and will be happy to provide you with advice on which process is the most appropriate for your circumstances.
