If you find yourself in financial difficulties you will have a few options in order to resolve you financial problems. You could agree with your creditors on the extension of time for repayment of your debt or you could declare yourself bankrupt. There are a number of collective and enforcement insolvency procedures which will deal with your situation and may help you get out of your financial trouble.
Collective insolvency procedures
Individual Voluntary Arrangement (IVA)
An IVA is a type of a collective insolvency procedure which will help the debtor agree with his creditors on some terms in relation to repayment of his debt. IVA will help the debtor avoid being made bankrupt. Generally an interim court order will be issued by the court which will approve this arrangement. Such an application for an interim order will stop the creditors from exercising any action against the debtor without the consent of the court e.g. peaceable re-entry. The order will last 14 days and during this time it will be decided how to implement the proposals and whether to call the creditors’ meeting. The court must think it is appropriate in all the circumstances. It is the debtor who applies for this interim order and he will also have to prepare statements of his affairs and proposals for arrangements. The application for an interim order will protect the debtor from any action which could be taken against him by the creditors. If a debtor does not require such a protection, no interim order will be required. The meeting will then take place and the creditors will vote whether to approve suggested arrangement or not. As soon as they agree to it, this will be binding on them. The proposals will then be implemented by the supervisor of IVA so called nominee. He may also apply for the court’s directions in relation to implementing the suggested proposals.
Post bankruptcy fast-track IVA
It is possible to apply for IVA even if the debtor is bankrupt. This is a different procedure involving appointing Official receiver as a supervisor of the IVA. Official receiver will then deal with creditors and make suggestions for proposals. There is however a need for an approval from 75 percent of creditors for suggested proposals.
Arrangements other than IVAs
It is always up to the debtor’s ability to agree with his creditors on reaching a settlement. He can try and negotiate a proposed settlement which he should communicate to the creditor and ask for approval. In some circumstances the creditor may be willing to cooperate.
Enforcement insolvency procedures
The debtor, creditor or supervisor of IVA can apply for a bankruptcy although sufficient grounds must be fulfilled in order to apply. The main grounds are the inability to pay the debts and a judgment against the creditor in legal proceedings or elsewhere. The debt must exceed the sum of £750 and the debtor must be present in the UK. However if a debtor is applying for a bankruptcy in his own name, the inability to pay debts is a sufficient ground. The bankruptcy order will then be issued. A trustee may be appointed. The trustee’s responsibility will be to distribute the assets and realise the bankrupt’s property. The proceeds from the realisation will have to be divided between the creditors in a certain order.
Connection with Human rights
It has long been discussed that such an order may clash with and infringes the debtor’s human rights stated in European Convention of Human Rights. These are the right to privacy, fair trial and enjoyment of possessions.
The order of priority
The order for payments is as follows; secured creditors, costs and expenses for the bankruptcy, specially preferred creditors, preferential creditors, ordinary unsecured creditors, statutory interest, and debts of a spouse.
Is there any discharge of bankruptcy?
General rule is that there is a discharge after a period of one year. The period may even be shorter if Official receiver issues a notice stating that there is no need for a further investigation of a case, in such a case bankruptcy may be discharged. The bankruptcy will therefore be released from the debts. Bankruptcy restriction order may however impose some restrictions on the individual.