*Calls cost 5p per minute plus your phone company's access charge

Debt Over £15,000

I have debts over £15,000

Typically there are 2 solutions for the more seriously indebted individual; Bankruptcy and an IVA (Individual Voluntary Arrangement). Before the introduction of IVAs, the decision facing most debtors was whether to declare themselves bankrupt or to continue to struggle with mounting debt repayments.

Bankruptcy

Bankruptcy is one way of dealing with serious unsecured debts that you cannot pay. Bankruptcy proceedings eventually free you from overwhelming debts, however any assets that you may have may be sold and the proceeds shared amongst your creditors, this will usually include your house.

A Court orders that your assets and liabilities are handed over to The Official Receiver, who will investigate your financial situation and make a report to your creditors. If you have assets, such as equity in your house, a Trustee may be appointed to realise their value and to distribute these as a dividend to your creditors.

Unfortunately, your Bankruptcy Order is advertised in your local paper, and not kept confidential. You should prepare yourself for family, friends and colleagues becoming aware of your bankruptcy. It is highly likely that your bank accounts will be frozen, if not closed, and you should expect to have difficulty in re-establishing a new bank account. Whilst you are bankrupt (undischarged) there are restrictions which apply to you: (a) you are not allowed to obtain credit of over £500 without disclosing your bankruptcy and (b) you cannot act as a manager or director of a limited company.

If you have surplus income after meeting your essential household and personal expenses, you will have to make payments out of your income for up to 3 years.

Your assets and income are dealt with by a licensed and regulated insolvency practitioner or by a government official called the official receiver.

Bankruptcy usually lasts for 1 year, and once you have been freed (discharged) from your bankruptcy, you are released from your debts (with certain exceptions).

Pros

  • Debts are written off, with certain exceptions
  • Creditors can’t take further action unless the debts are secured on your home or other property.
  • It allows you to make a fresh start after only a year.
  • You may be able to avoid having to sell your home if your spouse, partner or a relative can buy your share of its value after any debts secured on it have been paid.

Cons

  • Your bankruptcy is entered on a public register and is advertised.
  • If you apply to the court for your own bankruptcy you will have to pay a court fee and deposit totalling £510*.
  • You will remain liable to pay certain debts – in particular student loans, fines and some debts arising from family proceedings.
  • Any business you have will almost certainly be closed down.
  • Your employment may be affected.
  • Certain professionals are barred from practising if they are made bankrupt.
  • You can’t act as a director of a company or be involved in its management unless the court agrees.
  • You will be committing an offence if you get credit of £500 or more without disclosing that you are bankrupt.
  • You may have a bankruptcy restrictions order** made against you for 2 to 15 years if you acted irresponsibly, recklessly or dishonestly.

*Correct as at January 2012
**An order that will place restrictions similar to those in force while a person is bankrupt, which the official receiver may apply for.

For more information about bankruptcy, visit the web site www.insolvency.gov.uk.


Individual Voluntary Arrangement (IVA)

For an IVA you need to go to an insolvency practitioner who will prepare, negotiate and administer an arrangement for you to voluntarily repay your creditors. This may be done by using your spare income, a lump sum or other assets that you own.

If you have surplus income after meeting your essential household and personal expenses or have assets that can be used to pay your creditors or have access to a lump sum, for example from a relative, you may then consider entering into an Individual Voluntary Arrangement (IVA). Doing this will protect you from recovery action that your unsecured creditors may take, and will usually involve your creditors writing off part of what you owe them.

A proposal for an IVA will only be approved where enough creditors vote in favour (the vote needs 75% of the money value of your creditors to vote in favour for it to be approved).

The person you choose to supervise your IVA must be licensed and regulated under insolvency law as an insolvency practitioner. The insolvency practitioner will charge fees for preparing, negotiating and administering your IVA. Before the practitioner asks you to sign up to an IVA, they should give you details of the fees they want to charge you and how these must be paid – whether as a lump sum or from the payments you make into the IVA.

Pros

  • Creditors who vote against your proposal are still bound by it.
  • Creditors whose lending is unsecured can’t take any further action.
  • Interest is usually frozen as long as you keep up your payments.
  • Your insolvency practitioner will help you prepare your proposal, including agreeing the level of your household and personal spending based on guidelines acceptable to creditors.
  • Many insolvency practitioners will allow you to pay their fees for preparing your proposal monthly, as part of the IVA.
  • You make only a single payment each month or quarter. Your insolvency practitioner is responsible for administering and distributing your payments.
  • The terms of an IVA will usually enable you or your spouse or partner or a relative to make arrangements to buy your share of the net worth of your home or to make extra payments, rather than the home having to be sold. This may be done through a remortgage or a loan. (Net worth means its value after any debts secured on it have been paid.)
  • On completion of the IVA, the balance of what you owe your creditors is written off.
  • You may be able to continue running any business you have.

Cons

  • Your IVA is entered on a public register.
  • The insolvency practitioner may require payment in advance for preparing your proposal and getting your creditors’ agreement.
  • If there is some equity (value) in your home after taking account of the mortgage(s) on it, you will probably have to pay for your share, usually in the fifth year of your IVA, by remortgaging the property. If you can’t get a remortgage, you may have to continue making monthly or quarterly payments from your income, for up to another year.
  • If your circumstances change, and your practitioner can’t get creditors to accept amended terms, the IVA is likely to fail. You will then still owe your creditors the full amount of what you owed them at the start, less whatever has been paid to them under your IVA.
  • If your IVA fails, you may be made bankrupt.

Is an IVA the best answer for me?

  • Do you have a minimum level of £15,000 of unsecured debt to at least 3 creditors? Sometimes, if you have (say) a loan and a credit card from the same lender this will often not count as 2 separate creditors. If you are unsure, call us or use the contact form on this web site.
  • Do you have residual monthly income, after all your household bills and priority debts (i.e. your mortgage) have been paid for, of at least £200 per month? You will need to have at least this much disposable income available to make payments to your creditors if you want to operate an IVA. You can usually expect it to last for between 3-5 years.
  • Do you want to avoid bankruptcy? The main difference between bankruptcy and an IVA is that an IVA allows you to keep your home.

An IVA is available to you free of charge, because your creditors pay the costs. However, the proposal, implementation and management of an IVA is a time consuming and expensive process, and these costs reduce the amount that is finally repaid to your creditors. Therefore, your creditors have basic thresholds to ensure that an IVA remains economical.

For debts below £15,000, the costs of the IVA are too high as a proportion of the level of debt, and for cases where the monthly repayment is less than £200, the running cost of the IVA would take up a substantial amount of the money coming in from your monthly repayments. In such cases, it is unlikely that the IVA would provide your creditors with a satisfactory return.

Because an IVA potentially avoids all the pitfalls of bankruptcy (the stigma and its restrictions) it is reasonable for your creditors to expect a better return from your IVA rather than by making you bankrupt.

If you fail to comply with the terms of your IVA, (i.e. make all the monthly payments) then your Insolvency Practitioner, acting as Supervisor, may be obliged to petition for your bankruptcy. You would have wasted a lot of time and effort, on your own behalf as well as theirs and the contributions paid up to the time of failure.

Therefore, do not enter an IVA unless you are confident that you can adhere to the repayment terms and you are committed to avoiding bankruptcy.


I’m interested in an IVA. How does it work?

We work with some of the best Insolvency practitioners available to resolve your debt problem.

We will conduct a financial fact find into your individual circumstances and will evaluate your income and expenditure to determine how much you can afford to pay into your IVA each month (this is what we call your Minimum Disposable Income – MDI).

Additionally we will determine the circumstances that caused your current financial difficulties.

If your creditors are taking any legal action against you, we will protect you from your creditors, by obtaining a Court Order, whilst your IVA is being set up.

We will prepare a detailed IVA proposal, on your behalf, which is issued to your creditors.

The proposal, based on information that you provide to us, includes your monthly disposable income which you will repay into the IVA. At this point in the process, one of our Licensed Insolvency Practitioners will undertake the role of 'Nominee'; (i.e. nominating you for an IVA). Only Licensed Insolvency Practitioners are allowed to nominate you for an IVA.

He or she will arrange for a meeting of your creditors to be held to vote on the proposal. This is normally conducted by telephone as all your creditors will have been issued with your IVA proposal before the meeting in order to understand why an IVA is suitable for you, and the best option for them.

At the creditor meeting, the votes are counted to determine whether the required majority for approval has been obtained. At this stage it is possible for changes to the proposal to be received and considered.

In the vast majority of cases the IVA proposal is approved at the first creditor meeting. However, in the minority of cases, if further negotiation is required with your creditors, the meeting can be adjourned (for up to 2 weeks) to secure support for your proposal. This most commonly happens when your creditors think that your expenditure declaration is excessive or exaggerated. So, remember, be honest. It's the only way!

When your IVA is approved, all your creditors are bound by it, even those who voted not to accept your proposal.

The Nominee reports to both your creditors and the court that your proposed IVA application has been accepted.

During the course of your IVA, you must make the agreed monthly payments to the Insolvency Practitioner who will now be known as your 'Supervisor'. The Supervisor administers your arrangement until completion, ensuring that you comply with the terms, and is responsible for paying dividends to your creditors.

On successful completion of your IVA, the Supervisor issues the final report and dividend. A certificate of compliance certifying the successful completion of the IVA is filed.


How much do my creditors want from me?

There is not a set figure that your creditors have to or will accept in deciding whether to agree your IVA proposal.

They want to see that you are proposing a fair repayment schedule, that is affordable to you and is sustainable, and in return they will agree to freeze all interest and charges and whatever remains outstanding at the end of your IVA will be legally written off by them. In addition, all legal action and collection calls and letters will cease.

Each case is different, and your IVA proposal will offer a different repayment than for example your neighbour, who may have the same level of debt as you. It's all about how much you can afford over the period of the IVA that is fair and acceptable to your creditors.

IPs are highly experienced in structuring IVA proposals and have excellent relationships with the creditors, which will ensure that they only propose IVA's that they feel the creditors will find acceptable.

They also want to ensure that you are able to retain a sensible standard of living throughout the IVA in order to reach its' conclusion, allowing you to be free of debt.


What if I come into some money whilst in an IVA?

This is usually called a windfall. This could be from winning the lottery to an inheritance or large bonus payment.

As your creditors are agreeing to freeze all interest and charges and to write off a large proportion of your debt, it would clearly be unfair if you were to retain this money.

Your IVA will usually include a 'windfall' clause that will require you to pay the money into your arrangement. In the event of bonus payments, or regular overtime, depending on their value, you will be required to share the benefit typically on a 50:50 basis with your creditors.

You have to be reasonable when it comes to your receipt of additional money. Your creditors have after all agreed to co-operate with current situation and they will expect to receive a proportion of any additional windfall you might receive. It may not seem ideal, but it's only fair! Sorry!


Will I ever be able to get credit again after an IVA?

Yes!

During your IVA you have agreed not to obtain further credit. When your IVA is completed, it is likely to remain on the credit reference databases for a further year. During this time you will probably still find credit difficult to obtain. However, when your IVA concludes successfully, your credit rating is likely to be repaired more quickly than if it fails.

Generally, you are better able to obtain credit once your debt problem has been resolved. When considering entering into an IVA the last thing you should be thinking about is more credit! There are many lenders who will look at your ability to pay, and successful completion of an IVA, rather than just your credit file.

A successfully completed IVA is an excellent example of a good payment history.

Take me to the top