Insolvency, Bankruptcy and Debt Relief Orders

If you do not have enough income to pay off your debts you may have to consider a more formal and final remedy to your debt problems. These solutions to debt should be considered carefully as they can have a huge impact on your future ability to get a mortgage or a loan to pay for a car or holiday. Get free advice from CAB or an independent advice agency if you are considering these options. You may still be able to come to an affordable repayment agreement with your creditors.

The three most common ways of formally dealing with a debt are

Individual Voluntary Agreement (IVA)
Bankruptcy
Debt Relief Order

Individual Voluntary Agreement

An IVA is a formal agreement between you and your creditors. It will have to be set up by an authorised Insolvency practitioner and there are costs involved. You can apply for an IVA if your debts are greater than £15000. Secured debt, such as a mortgage, cannot be included in this amount.

To qualify for an IVA you will need to have a steady income source and be able to pay a set amount towards your debts each month. The insolvency practitioner will contact all your creditors and try to get them to agree to the terms of the agreement. In most cases, interest and charges will be stopped if a creditor agrees to the terms of an IVA.

If you are a homeowner and you have an IVA, your creditors may expect you to remortgage your home to help pay off your debts. Having an IVA may also affect your ability to open a bank account and apply for loans and credit in the future.

Get advice from Citizens Advice Bureau or an independent advice agency if you are thinking about an IVA.

Bankruptcy

If you are unable to pay your debts, and you owe a creditor more than £750 your creditor may ask the court to make you bankrupt. You can also apply for bankruptcy yourself if you are unable to deal with your debts, but this can be expensive as you will have to pay court fees.

Bankruptcy is a serious matter. After one year, you will usually be “discharged” from your debts, even if they haven’t been paid off fully but your credit rating will be affected by the bankruptcy for a long time. Bankruptcy can be a way of starting over for some people but it will have a very big impact on your long term ability to apply for loans, credit cards or store credit in the future. The court can make you sell off any assets you own, including your home, to pay off your debts.

You should get specialist advice if you are considering this option.

Debt Relief Orders

Debt Relief Orders were introduced in Northern Ireland in June 2011. This type of debt remedy is not suitable for homeonwers. You can apply for a DRO if

your assets are worth less than £300
you have less than £50 a month spare income and
your debts are less than £15000.

If you wish to apply for a Debt Relief Order you need to contact an organisation that is authorised to carry out this work, known as a competent authority. In Northern Ireland, the following organisations have been made competent authorities

You will have to pay a fee to apply for a Debt Relief Order, but this fee is less than the cost of bankruptcy. The order is made for one year, during which time your creditors cannot ask you for money towards your debts. IF your circumstances have not changed once the year is over the debt is written off, but you may still experience difficulty getting credit in the future.

If you are considering any of these options as a way of dealing with your debts, it is important that you get free, impartial advice from an independent money advice agency, such as those listed above.

The guides below contain further information on Debt Relief Orders.

icon Guide to Debt Relief Orders