Bankruptcy, IVA and Debt Relief Orders
This is an area that no one wants to face but it is generally a good idea to understand the different processes. Should your business find itself in financial difficulty there are a number of avenues that you can take, here we go through some of the options available to you both as an individual and a company.
You should always take professional and independent advice before committing to anything, if require further advice or information contact janetpeacock@i-resources.co.uk who will be happy to provide you with free independent advice.
Debt Relief Order
This is relatively new (April 2009) and is a somewhat diluted process of bankruptcy, it removes the need to attend court and is an option those who have no assets and have liabilities that do not exceed £15,000.
In order to apply for this order you will need to use an approved company and a small charge of approx £100 for you order to be submitted.
This will obviously have an adverse effect on your credit rating but not to the extent of bankruptcy.
Individual Voluntary Arrangment
This is a formal proceeding instigated when an individual becomes insolvent (liabilities outweigh assets) and has the opportunity to repay their creditors a percentage of what they owe i.e. 40p in every pound.
An insolvency practitioner will be able to inform you if this is a suitable option, this decision will depend on a number of factors:
- The financial amount of liabilities owed
- Level of disposable income
- Creditors vote
Although there is no formal length of an IVA, as a general rule they normally last around 60 months and may include a clause that this can be extended depending on the amount paid back.
It is also common practice to include a clause that will require you to access any equity in your property (if you are a homeowner)
There are a number of advantages in entering into an IVA, these are:
- Your name/business is not publically displayed in the local paper
- You can still hold a directorship
- Your credit rating will not be as affected as if you were to go bankrupt, although to be honest any of the options above is going to have an adverse affect on your credit rating.
If your proposal is accepted by your creditors it will be overseen by a supervisor (normally your insolvency practitioner) who will be responsible for ensuring that payments are kept up to date.
The terms and conditions of your IVA will greatly depend on your personal circumstances and are reviewed on an annual basis.
Bankruptcy
This should be considered the last option and you will be surprised at the number of options that could be available to you. Unfortunately this is not always the case and sometimes the only route is to declare yourself bankrupt.
There are two main routes to bankruptcy:
Declare yourself bankrupt with the Official Receiver
Visiting the official receiver, paying the fee (approx £500) and declaring yourself bankrupt in a court of law, this will require you to detail all liabilities and assets and you will be required to contribute up to 50% of your disposable income for normally the next three years into a fund that the official receiver will allocate to your creditors accordingly.
Your bankruptcy will vary greatly, but as a norm it tends to last around 12 months (although I have heard of people being discharged after 6 months. Throughout this time you are not permitted to obtain any credit and may find it difficult obtaining a bank account although some banks have specially designed accounts for people will adverse credit.
One of your creditors petition for your bankruptcy
Although neither of these options are pleasant, this one can get particular nasty as a creditor will go to every length to obtain the money from you without pursuing bankruptcy, as the amount of money they then receive is out of their hands and decided by the official receiver it is also likely that other creditors will put forward their own claims potentially reducing the amount they will receive.
For more information on the services above you can visit http://www.nationaldebtline.co.uk/ or for an informal chat email janetpeacock@i-resources.co.uk.