What is bankruptcy and what are its consequences?
Bankruptcy is a procedure whereby most of your assets are frozen so that they can be sold and the proceeds distributed equally to your unsecured creditors.
A bankruptcy order is made by the court and can be done at the request of the individual who is insolvent or by a creditor. Once the order is made the bankruptcy estate is administered by the Official Receiver. A creditor may nominate an insolvency practitioner to act as trustee in bankruptcy. The trustee’s role is to administer the estate by realising all of the bankrupt’s property so that the costs can be paid and a dividend be paid out equally to the creditors.
Our business recovery and insolvency team can advise you whether you are a bankrupt or you are facing bankruptcy. We can offer advice on how to work and cooperate with the Official Receiver and/or a trustee in bankruptcy. We can also advise you or a third party such as your spouse in protecting assets or making arrangements to buy back assets such as the matrimonial home from the trustee.
It sounds a bit drastic… what are the alternatives?
An Individual Voluntary Arrangement (“IVA”) is the main alternative to bankruptcy. An IVA is where an insolvent individual puts forward a proposal to their creditors offering either a payment in full or a percentage of the outstanding debt. The scheme must be more advantageous to creditors than bankruptcy.
The IVA is administered by an insolvency practitioner who acts as the Supervisor. We work with individuals who propose IVA’s as well as insolvency practitioners who act as Supervisors. We can advise you on whether an IVA is suitable, the consequences of entering an IVA. We will work with the insolvency practitioner who will also assist in the preparation of the proposal for the IVA to work.
A Debt Relief Order (“DRO”) is a relatively new procedure and is designed to insolvent individuals with liabilities less than £15,000 with assets below £300. A DRO provides breathing space for 12 months to enable the insolvent individual to try and reach a settlement with their creditors. They are administered by the Official Receiver. We can advise you as whether a DRO is appropriate and the consequences of entering into a DRO.