Insolvency in United Kingdom

Insolvency in United Kingdom has grown dramatically over the past few years. In 2010, the Insolvency Service registered 135,045 insolvencies, which is a huge increase from just 67,584 recorded in 2005. Fortunately, due to recent changes, one can resolve his or her insolvency in several ways.

Individual Voluntary Agreement (IVA)

An individual voluntary agreement (IVA) is a formal alternative to filing bankruptcy as it allows one to enter into a contractual agreement with one's creditors. The agreement is different from bankruptcy in that it is flexible to one's own circumstances rather than being standardised across multiple insolvencies like bankruptcy. One's monthly payments to his or her creditors is based on one's savings, income, and payments to third parties such as to RAC or AA; once these are taken into consideration, a proposal from a insolvency practitioner (a court-appointed official who oversees insolvencies) would be sent to one's creditors for approval.
There are several advantages to an IVA over bankruptcy, with the first being that one would only have to make additional payments after deducting essential expenses and payments to secured creditors from one's income, with a secured creditor being one would has a loan backed by an asset (such as a home or car). With bankruptcy, one's entire disposable income would be subject a court order, known as an Income Payments Order (IPO), which forces payments to one's creditors for three years. Second, one could keep his or her home while making payments under the agreement, while one's home would be repossessed after a year with bankruptcy. Third, one pays over five years with his or her debts being frozen with no accruing interest; one is out of the agreement and debt afterwards. Married couples can have a joint IVA with one monthly repayment, which allows them to consolidate their debts by immediately writing off 75 percent of it. In fact, they can file for tax relief against their debts. In addition, creditors cannot contact you during the agreement unless one fails to pay. One can also continue to do business during an IVA, which one cannot during bankruptcy. Additionally, an IVA is also binding with all creditors if a majority accepts the terms.
However, one must keep in mind that an IVA affects one's credit history for six years. Also, there are fees charged by the Insolvency Service for making the agreement, which are nonrefundable and deducted before one's payment to his or her creditors. One is also required to remortgage his or her home during an IVA as well. Third, one must have two or more creditors with a total debt of 13,000 pounds or more to qualify for an IVA, but its advantages far outweigh one's other option: bankruptcy.

Bankruptcy

Bankruptcy is another form of resolving one's insolvency with a few caveats. First, one is not allowed to direct a limited company, obtain credit over 500 pounds, use a bank or credit card, trade under another name, or be a trustee to a charity or pension fund, during bankruptcy. Second, one is directed by the court through an IPO to pay as much as one's disposable income to his or her creditors; missed payments can result in legal action. The payments are determined by one completing a Statement of Filings with the court that details one's expenses. However, if one can pay his or her debts in full to one's receiver (a court-appointed official) while notifying the court, a bankruptcy proceeding can be reversed. One's debts can also be discharged early if the court finds that a bankruptcy is unnecessary or that the debts have been satisfied; however, a creditor or trustee can object to this.
Fortunately, in 2004, Parliament passed the Enterprise Act, which made one's bankruptcy discharged automatically after a year, unless one has failed to make payments or to cooperate with the receiver. Even with a bankruptcy on one's record, one can still obtain a mortgage or credit; nevertheless, one must obtain a bankruptcy discharge certificate from the court, for a fee, to show to one's new creditors. Also, one cannot discharge his or her student loans, child support, or court fines during bankruptcy as well. Yet, there is another alternative to bankruptcy: a debt relief order (DRO).

Debt Relief Order (DRO)

A debt relief order (DRO) is an order of insolvency filed with the Service that is cheaper than bankruptcy. The order lasts for one year and bans any creditors from taking action against you, with one being free from his or her debts thereafter; it can be obtained, for a fee of 90 pounds, through an authorized adviser if one has 15,000 pounds or less in debt, 50 or less pounds in disposable monthly income, and has lived, traded, or owned property in England or Wales for the past three years (if filing from overseas).

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