In the UK, when a debtor owes a sum of money in excess of £750 to a creditor, he can be made bankrupt by the creditor applying to the court for a bankruptcy order to be granted against him. This sum can comprise of debts that are due to a number of creditors who may petition the court as a group for a bankruptcy order, not necessarily a single creditor.
Bankruptcy is an option that can be considered when a debtor cannot pay their debts as they become due and their financial affairs become untenable. Although bankruptcy has a bad stigma and is publicly advertised, it should always be considered, even as a last resort and a debtor can apply for a bankruptcy order on his own behalf, even if creditors are not willing to do so. Debtors who are made bankrupt will usually remain bankrupt for one year, after which any debts relating to the bankruptcy are removed.
Many debtors now enter into ‘Individual Voluntary Agreements’ (or IVAs) as an alternative to bankruptcy. If a debtor’s financial difficulties are temporary and he is likely in the future to be in receipt of funds which may pay all or most of his debts, he can talk to an insolvency practitioner with a view to obtaining such an agreement.
Through an IVA, proposals of repayment of debts are put forward to creditors, which can include banks, building societies, credit card companies and debt collection agencies, such as the CapQuest Group. Mostly these proposals involve either a lower monthly repayment or in some cases, a reduced final settlement amount. In order to succeed, however, the arrangement must be supported by at least 75% of all creditors affected by the IVA.
Despite the ‘softening’ of bankruptcy laws by the Enterprise Act 2002, the popularity of IVAs has grown in recent years. The Enterprise Act 2002 effected changes in bankruptcy law which many experts thought would see the end of IVAs, as it was generally regarded that bankruptcy would be seen as an easy way out for many debtors. However, even after a debtor is discharged from bankruptcy, many banks and other financial institutions will be aware of the debtor’s financial history and this may affect any borrowing capabilities in the future.
Personal insolvencies are at record levels across the UK, with just over 26000 bankruptcies and IVAs in the period April to June 2006. These figures represent an increase of 10% on the first quarter of 2006, and 66% over the same quarter in 2005.
However, before any decision is made as to which route to follow, it is vitally important that a debtor seeks advice from a solicitor, insolvency practitioner or local Citizens Advice Bureau. There are also many specialised companies to be found the internet that are available to the debtor who can help to arrange an IVA or provide advice on how best to proceed in dealing with their financial situation.
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