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Date of publication: September 2016

There are a number of ways that individuals getting into financial difficulty may seek to resolve their position. Each method is restricted depending on the level of debt, the circumstances of the individual and the nature of the debts involved. Below is a brief outline of the possible resolutions.

Non Statutory Solutions

  • These may include:
  • Informal Agreement
  • Debt Management Plan
  • Consolidation loan

Administration Orders

If a creditor obtains judgment the court may pass an Administration Order whereby a debtor contributes regular income to the court for distribution to the creditors.

Total debts must be less than £5,000.

Debt Relief Orders (“DRO”)

These schemes are administered by the Insolvency Service and are suitable for those debtors who have a maximum disposable monthly income of £50 and have less than £15,000 worth of unsecured creditors.
The DRO will last for 1 year, after which the debt will be written off in the event that the debtor’s circumstances have remained the same.

There are a number of ways that individuals getting into financial difficulty may seek to resolve their position. Each method is restricted depending on the level of debt, the circumstances of the individual and the nature of the debts involved. Below is a brief outline of the possible resolutions.

Individual Voluntary Arrangement (“IVA”)

An IVA is a statutory solution for debtors to reach agreement with their creditors for repayment of the debt.  By and large repayment will be in part rather than full.

Prior to the implementation of an IVA, a meeting of creditors will need to vote for the approval of an IVA.
If less than 75 % of voting creditors approve the IVA the outcome for the debtor is commonly bankruptcy.

A Licensed Insolvency Practitioner would act as Supervisor of the IVA.

An IVA will largely let the debtor avoid the stigma and restrictions of bankruptcy but will generally only be a viable option if:

The debtor has a disposable income; or

Has a saleable asset or third party willing to donate funds to the IVA.

Bankruptcy

This is invariably a creditor driven process, which follows a bankruptcy order made by the court. It is a creditor's action of last resort in attempting to collect an outstanding debt. The process aims to ensure that all assets are distributed fairly amongst creditors.

From the debtor’s point of view, the bankruptcy order can remove the pressure of creditors and so enable him or her to make a fresh start.

A Licensed Insolvency Practitioner would act as Trustee in Bankruptcy and has wide ranging powers in order to review the conduct of the debtor, which in turn may result in recovery of funds for the benefit of creditors.

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Disclaimer: This note does not contain a full statement of the law and it does not constitute legal advice. Please seek legal advice if you have any questions about the information set out above.

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