Personal FAQ

1. Will I lose my house?

Not necessarily. However, if there is equity in your house, this will need to be dealt with.

An individual voluntary arrangement (“IVA”) can allow you to keep your house. However, if you are unable to pay your creditors in full by other means, it is likely that you will be required to make a payment to your creditors in lieu of the value of your share of any equity in your house.

In bankruptcy, your share of any equity in your home is transferred to your trustee when you are made bankrupt. You (or alternatively, prior to your discharge from bankruptcy, a third party) will, therefore, need to negotiate with him to buy out his interest; otherwise he may be obliged to sell the property.

If you have dependants living in your home with you, it is likely that the trustee will have to wait at least 12 months before taking steps to sell the property. The trustee does, however, have to take steps to realise his interest within three years of the date of the bankruptcy order.

If there is no equity, the house may still be at risk in bankruptcy, if the trustee is obliged to sell the house in order to release the value of a linked endowment policy.

2. Will I lose my job?

Not necessarily. Bankrupts may be prevented from practising by certain professional bodies and cannot act as directors of limited companies; otherwise it depends on the terms of your contract of employment.

An IVA is unlikely to affect your employment, unless you are authorised by a professional body, in which case you should seek their advice. Directors can continue in office and do not have to resign.

3. Will I lose my car / personal possessions?

Not necessarily. In bankruptcy it depends on their value. Household possessions of reasonable value can be retained, as can a motor vehicle of modest value needed for work / business.

In an IVA, the retention of assets is open to negotiation with your creditors. However, there is a good prospect that creditors would allow you to retain a vehicle of reasonable value, particularly if you need it to earn a living.

Hire purchase assets are subject to separate rules and can be repossessed as a result of the bankruptcy. They usually will be repossessed if payments are not maintained.

4. Can I protect my business?

Possibly. In an IVA your business and assets can be protected by obtaining an interim order from the courts, pending the consideration of your proposal by creditors.

In a bankruptcy, the granting of the bankruptcy order would prevent any further action being taken against you by your creditors; however, any assets, including those of any unincorporated business, would now transfer to “vest in” the trustee.

If you are not bankrupt or subject to an IVA, creditors may take steps to remove assets in payment of their debts.

5. Can I continue to trade?

Yes. In an IVA you can agree with your creditors that you continue to trade in order to maximise the potential return to them. This can also include proposals to retain those assets necessary to enable you to continue to trade. However, you may find your credit terms are restricted.

In bankruptcy, you may be able to continue trading although this may be hampered by the requirement to state that you are bankrupt when obtaining credit of £500 or more; including entering into any hire purchase agreements or taking any customer deposits for sums exceeding this figure. In addition, the trustee may also remove and sell any stock and assets that you need to continue trading.

6. What will happen to my credit rating?

In both bankruptcy and IVA your credit rating is likely to be adversely affected. However, if you are in an IVA you are not required by law to reveal you status when applying for credit, as is the case with bankruptcy.

Credit providers operate their own credit scoring system and it is likely that your credit rating will have been affected prior to either procedure, if you have judgements or have missed any credit card or mortgage payments.

7. How can I keep my financial position private?

By coming to an informal agreement with your creditors.

In bankruptcy, details of the bankruptcy order are advertised in the London Gazette.

Whilst there is no similar requirement to advertise IVAs in newspapers, details of both IVAs and bankruptcies are recorded on the Individual Insolvency Register maintained by The Insolvency Service, and this register is in the public domain. Details of any bankruptcies or IVAs will also appear on the credit files maintained by credit reference agencies.

8. What are the consequences of bankruptcy?

The main consequences of bankruptcy are as follows:

  • Your credit rating will be affected.
  • You will be an undischarged bankrupt for up to 12 months, unless you have previously been bankrupt or the Official Receiver obtains a bankruptcy restriction order against you due to inappropriate conduct prior to your bankruptcy.
  • You lose control of your assets as these automatically transfer to (“vest in”) your trustee.
  • You must co-operate with the court and attend at any public or private examinations, if required.
  • You may have to make payments from any surplus income to your trustee for up to three years.
  • You may be prevented from practising by certain professional bodies and cannot act as a director of a limited company.
  • The bankruptcy order is advertised in the London Gazette.
  • The court may stay any other legal proceedings being taken against you
  • Your trustee is obliged to realise the value of your interest in any equity in your matrimonial home and may have to seek an order for possession and sale of that property.
9. What are the consequences of an IVA?

An IVA is a means to avoid bankruptcy and can allow you to retain certain assets. The main consequences of an IVA are as follows:

  • You will not automatically lose control of your assets.
  • The IVA is not advertised.
  • An IVA may postpone or avoid the sale of the family home.
  • An IVA will not necessarily prevent you from practising in certain professions, unlike bankruptcy.
  • It is easier for you to remain in business.
  • There is less stigma than with bankruptcy.
  • An IVA can allow you to organise your tax affairs, i.e. to plan disposals to maximise tax allowances.
  • If your IVA is approved all unsecured creditors will be bound by its terms
  • Creditors may suggest modifications to the terms of the voluntary arrangement, which may include the sale of the family home or the realisation of some or all of the equity in that property.
  • If you fail to comply with your obligations according to the terms of the proposal, a bankruptcy petition may be issued against you by the Supervisor of the IVA.
  • There is no automatic discharge, you are released from an IVA once all the terms of the IVA have been complied with.
10. What can a bailiff do?

In certain circumstances a bailiff can remove goods in an attempt to settle an outstanding debt. If you receive notice that a bailiff intends to visit your home or business premises, you should seek immediate help.

In such circumstances, a member of staff at Chamberlain & Co can speak to the bailiff, on your behalf, and may be able to negotiate with him to prevent your assets being removed.

11. What is a Statutory Demand?

This is a legal document formally demanding payment of an outstanding debt. If you fail to either pay the debt within the stipulated time period or apply to have the demand set aside, this provides grounds for a creditor to successfully present a bankruptcy petition.

12. Will I have to contribute anything from my income?

In bankruptcy your trustee may ask you to make contributions from any surplus income for the benefit of creditors. If you refuse, he may apply to court for an Income Payments Order, which may lead to the amounts concerned being deducted from your salary by your employers and paid direct to the trustee. Income Payments Orders can last for a maximum of three years.

In an IVA it is usual for a proposal to include affordable monthly contributions for the benefit of creditors, generally for a period of five years.

13. Is my pension safe?

Yes. Since 29 May 2000 pension assets have been protected from any claims by a trustee in bankruptcy. However, regular income already being received from pension funds may be subject to an income payments order.

14. Will my friends and family find out?

Not in an IVA, as this is a private agreement between you and your creditors, of which only your creditors will receive notice.

In bankruptcy, the Official Receiver will advertise the bankruptcy order in The London Gazette.

15. Can I do an IVA if I am currently bankrupt?

It is possible for an undischarged bankrupt to propose an IVA to their creditors. If approved, the bankruptcy can be annulled. If the terms of the proposed IVA are straight forward, the Official Receiver can assist in proposing a ‘Fast Track IVA’.

16. Can I still be the director of a limited company?

In bankruptcy you are automatically banned from being a director, whereas in an IVA you may still continue to act.

17. Can I enter an IVA if I have previously proposed / had an IVA approved?

Yes, although you cannot apply for an interim order, which gives you protection from your creditors, within 12 months of a previous application for an interim order.

In reality, your creditors are unlikely to approve a second arrangement if a previous IVA has failed.

18. I have been made bankrupt before - can I still do an IVA?

Yes, although the insolvency practitioner (“Nominee”) will be required to report to the court if you have been subject to any previous insolvency proceedings, including any prior bankruptcies or IVAs.

19. What is an IVA?

Widely used by individuals seeking to avoid the stigma of bankruptcy, an Individual Voluntary Arrangement (IVA) is a formal agreement between a person owing money (“debtor”) and his or her creditors, under which the debtor undertakes to makes certain payments or realise certain assets, or both, in full and final settlement of their debts via an Individual Voluntary Arrangement.

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