Before claiming insolvency, it’s important to understand what the process involves and how claiming it will affect you, to help you to decide if it is the right solution for you.
Claiming insolvency can help individuals suffering with debt problems to get out of debt and make a fresh start.
The insolvency process depends on an individual’s unique circumstances and the most appropriate insolvency service for them.
What happens when you enter into an IVA?
Entering into an IVA is usually preferable to filing for bankruptcy as it has less serious and long-lasting consequences. (See: Key differences between an IVA and bankruptcy.)
An IVA is an agreement between you and your creditors that allows you to pay off your debts in manageable instalments over an agreed period of time.
When you apply for an IVA, a licensed insolvency practitioner will be nominated to communicate with creditors on your behalf.
First, your insolvency practitioner will review your finances to ascertain whether your case is suitable for an IVA.
If you are a suitable candidate, then they will work with you to create a proposal to send to your creditors. To do this, they will work out a budget based on what money is available from your income once your living expenses have been deducted.
Creditors will then vote on your proposal.
If your proposal is accepted, you will make payments to your creditors through your IVA for an average of five years until the agreement has ended.
Details of your IVA will remain on the Insolvency Register for 12 months and will be visible on your credit history for six years.
What happens when you claim bankruptcy?
Bankruptcy is usually only applied for as a last resort, as it can result in the loss of valuable assets, including your home. Bankruptcy is also publicly advertised and can restrict your employment opportunities.
However, most people are discharged from bankruptcy after just one year and will be clear of most debts after this time.
When you apply for bankruptcy, you will need to pay a fee of £680.
Your application for bankruptcy will be processed within 28 days of receiving your fee.
At this point, all your assets stop being your property. They will then be managed by either the Official Receiver or a licensed insolvency practitioner, whoever has been assigned to manage your case.
Many of your valuable assets, including property and vehicles will then be sold to help pay off your debts.
You may also be issued with restrictions on the type of employment you can take and the amount of money you can borrow from lenders.
Your bankruptcy will be publicly visible on the Insolvency Register for 12 months and will show on your credit history for six years.