Personal Insolvency

Individual Voluntary Arrangements

An Individual Voluntary Arrangement (IVA) is an opportunity to avoid bankruptcy. It is a legal process which gives an individual struggling with their debts protection from their creditors.
Redmans Insolvency Services can assist the debtor in putting together a proposal to their creditors to repay their debt in whole or in part.

The proposal must be achievable, creditors will expect to recover a substantial amount and certainly the same, if not more, than they would if the debtor was declared bankrupt. Also, the proposal must include certain sanctions, such as a right to bankrupt the debtor should the IVA fail.

A creditors’ meeting will be held in order for the proposal to be voted on by the creditors. If over 75%, by value, either in person or by proxy, of the creditors approve the proposal, the proposal will be implemented.
Creditors can put forward changes to the proposal, but it is the debtors’ right to accept them or not.
This proposal is a contract between the debtor and the creditors, it is a formal legal document and once it has been approved by the creditors it is legally binding.

Bankruptcy

Bankruptcy is the administration of the financial affairs of an insolvent individual in the interests of creditors by a person known as a trustee in bankruptcy.
An application to court for a bankruptcy order may be made by any creditor owed more than relevant the statutory limit, or by the individual himself.

Once a bankruptcy order is made by the court, control of the bankrupt’s assets, subject to certain exemptions, pass to a trustee in bankruptcy, who may be either the Official Receiver or a licensed insolvency practitioner. However, certain assets do not pass to the trustee, including certain tools and equipment needed for use in the bankrupt’s business and basic domestic items such as clothing, bedding and furniture. In addition, usually, pension assets are also retained by the bankrupt.

If a bankrupt has equity in his home, that equity also passes to the trustee in bankruptcy and usually the home will have to be sold. However, the trustee will not force a sale within the first 12 months of the bankruptcy where the bankrupt is married and lives with his spouse, or where he has young children living with him. The bankrupt’s spouse is generally given the opportunity to purchase the trustee’s interest in the property at its current market value, before the trustee forces a sale.

If the bankrupt has surplus income above his reasonable needs and those of his dependents, then he will be expected to make contributions from his income to the trustee for the benefit of the creditors for up to 3 years.

A bankrupt is usually discharged from bankruptcy after 1 year, but it could be sooner should the official receiver deem it appropriate. However, the trustee will remain in office for as long as is necessary to sell the assets and distribute the proceeds to the creditors.
Once a bankrupt is discharged from bankruptcy their creditors can make no further claim upon them for a debt accrued before the date that the bankruptcy order was made.
Other effects of bankruptcy include:

• An undischarged bankrupt can not obtain credit of more than £500 without disclosing the fact to the provider of the credit that they are an undischarged bankrupt.
• An undischarged bankrupt must not carry on business under a name different from that under which they were declared bankrupt.
• An undischarged bankrupt must not act as a company director without the consent of the court.
• Their credit rating will be affected.