1. Insolvency options: summary
Someone is said to be ‘insolvent’ if s/he is unable to pay her/his debts as they fall due. In many cases, people are able to resolve their financial problems by coming to the informal arrangements with their creditors discussed earlier in this Handbook. There are also currently four ways in which a client can reach a formal arrangement with her/his creditors.
•Debt relief order (DRO) (see here). This gives the client a 12-month moratorium, during which time creditors cannot in force the client to pay the debts included in the DRO. At the end of the moratorium, the client is discharged from all the debts included in the order (other than those incurred fraudulently). DROs are suitable for clients: ◦who do not own their own homes; and
◦whose total debts (other than some specifically excluded debts) are £30,000 or less; and
◦whose available income does not exceed £75 a month; and
◦whose total assets (apart from some motor vehicles and other basic assets) are worth no more than £2,000; and
◦who are not currently subject to a bankruptcy order, a bankruptcy restrictions order/undertaking, a debt relief restrictions order/undertaking, or an individual voluntary arrangement (IVA); and
◦who have not had a DRO within the previous six years (unless the DRO was revoked).
•Bankruptcy (see here). An official receiver or an insolvency practitioner is appointed to handle the client’s financial affairs for the benefit of her/his creditors. This person is known as the ‘trustee in bankruptcy’. Bankruptcy can be requested by the client, by one or more creditors or by the supervisor of a failed IVA. Bankruptcy generally lasts for 12 months, after which time the client is discharged and released from all her/his unsecured debts other than those specified in the legislation. •Individual voluntary arrangement (see here). This is a formal arrangement made between the client and her/his creditors that creates a legally binding agreement between them. The arrangement allows the client to defer payment of her/his debts and/or the creditors to accept less than 100 per cent of their debts. Provided a certain percentage of the creditors agree to accept the arrangement, on its completion the balance of the debts is written off. In the meantime, the creditors agree not to take recovery action. However, secured creditors cannot be included in an IVA unless they agree. Student loans and child support cannot be included at all. •Administration order (see here). This is a county court order that prevents individual creditors taking enforcement action without permission from the court and which requires that all the debts of a person be dealt with together.1s112 CCA 1984 Once the administration order is completed, any outstanding balance is no longer payable. However, this is currently not a viable option for someone whose total unsecured debts exceed £5,000.
The legislation governing insolvency is contained in the Insolvency Act 1986 as amended, particularly by section 71 and Schedules 18 and 19 of the Enterprise and Regulatory Reform Act 2013 and the Insolvency (England and Wales) Rules 2016. (There is a destination table that identifies where provisions in the previous (1986) rules can be found in the new rules at .) The government agency that deals with insolvency-related matters is the Insolvency Service. Its website provides links to tools and information for debt advisers, including portals for making applications for bankruptcy and DROs on behalf of clients, guidance notes on DROs for debt advisers and useful forms, including a template to appeal against the adjudicator’s decision to refuse to make a bankruptcy order (available at ). Note: the Insolvency Service’s Technical Manual, which had not been updated since 2015, has now been removed from its website. This manual has been replaced by the Technical Guidance for Official Receivers, which is available at . The guidance has been laid out similarly to other gov.uk web pages. Advisers should note that the chapter numbers have all changed, and so you should update any references that you routinely quote.