Personal Insolvency

Personal insolvency — your options for dealing with personal debt

If you’re struggling with personal debts you can’t manage, you’re not alone. Thousands of people across the UK find themselves in this position every year, but there are practical, legal solutions that can help you deal with the situation and move forward.

Personal insolvency is different from company insolvency. It deals with debts you owe as an individual, not debts owed by a limited company. However, the two often overlap, particularly for company directors who have given personal guarantees on business debts, or who have an overdrawn director’s loan account.

This page explains the personal insolvency options available to you, how they work, and how to decide which one is right for your situation.

How do I know if I’m personally insolvent?

You are classed insolvent if you cannot pay your debts as they fall due, or if the total value of what you owe exceeds the total value of what you own. In practice, the warning signs include:

• You’re consistently missing payments on loans, credit cards, or other debts
• You’re borrowing from one source to pay another
• You’re receiving letters, calls, or legal threats from creditors or debt collectors
• You’ve received a County Court Judgment (CCJ) or a statutory demand
• Bailiffs have visited or you’ve received a notice of enforcement
• You’re only making minimum payments and the debt isn’t reducing

If any of these apply, it’s important to get advice as soon as possible. The earlier you act, the more options you’ll have which may include:

• Individual Voluntary Arrangement 

  An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors to repay a proportion of your debts over a fixed period, typically five to six years. You make a single, affordable monthly payment, and at the end of the IVA, any remaining debt is written off.

  An IVA must be set up and supervised by a licensed insolvency practitioner acting as your nominee and supervisor. For the IVA to go ahead, creditors representing at least 75% of the total debt by value must approve the proposal. Once approved, the IVA binds all creditors, including those who voted against it.

  An IVA is generally suitable if you have a regular income, owe more than around £10,000, and can afford to make monthly payments towards the debt. It allows you to avoid bankruptcy and, in most cases, keep your home.

• Bankruptcy 

  Bankruptcy is a formal insolvency procedure that provides a fresh start when debts are unmanageable. You can apply for bankruptcy yourself (a debtor’s petition) or a creditor can apply to make you bankrupt (a creditor’s petition).

  When you’re made bankrupt, an Official Receiver (or a trustee in bankruptcy) takes control of your assets. They may sell your property, vehicles, and other valuable assets to raise funds to repay creditors. Most people are discharged from bankruptcy after 12 months, at which point most remaining debts are written off.

  Bankruptcy is a serious step with significant consequences. You cannot act as a company director while undischarged, and bankruptcy is publicly advertised. However, for people with no realistic prospect of repaying their debts, it provides a clear route to a fresh start.

• Debt Arrangement Scheme (Scotland only) 

  The Debt Arrangement Scheme (DAS) is a statutory debt repayment programme unique to Scotland. It allows you to repay your debts in full over an extended period through a Debt Payment Programme (DPP), while freezing interest and charges. DAS is administered by the Accountant in Bankruptcy and is suitable for people who can afford to repay their debts given more time. Unlike a trust deed or sequestration, DAS aims for full repayment and no debt is written off.

• Sequestration (Scotland only) 

  Sequestration is the Scottish equivalent of bankruptcy. It follows a similar process to bankruptcy whereby a trustee takes control of your assets and distributes the proceeds to creditors. The main difference is that sequestration is governed by the Bankruptcy (Scotland) Act 2016 and administered through the Accountant in Bankruptcy. You cannot act as a company director while undischarged from sequestration.

• Trust Deed (Scotland only) 

  A trust deed is the Scottish equivalent of an IVA. It’s a legally binding agreement between you and your creditors, supervised by a licensed insolvency practitioner (known as the trustee). You make monthly payments for a fixed period, usually four years, after which any remaining debt is written off. A trust deed becomes “protected” once it’s registered in the Register of Insolvencies, at which point creditors cannot take enforcement action against you.

We also have a dedicated personal insolvency website for those living in Scotland which can be accessed at www.scotlanddebt.co.uk.

For general information on dealing with personal debt, visit the Money Helper website.

Fees and Information

There are fees associated with our services. These will be fully explained before entering into any of the personal debt solutions referred to on this website. Full details of our fees and how these are charged are fully explained to you prior to you committing to any particular service.