Alternatives

a. Debt Relief Orders (From 6 April 2009)

What is a debt relief order (DRO)?

DROs provide debt relief, subject to some restrictions. They are suitable for people who do not own their own home, have little surplus income and assets and less than £15,000 of debt. An order lasts for 12 months. In that time creditors named on the order cannot take any action to recover their money without permission from the court. At the end of the period, if your circumstances have not changed you will be freed from the debts that were included in your order. DROs do not involve the courts. They are run by The Insolvency Service in partnership with skilled debt advisers, called approved intermediaries, who will help you apply to The Insolvency Service for a DRO.

Is a DRO likely to be suitable for me?

To apply for a DRO, you must meet certain conditions:

You must be unable to pay your debts.
You must owe less than £15,000.
You can own a car to the value of £1000 but the total value of other assets must not exceed £300.
After taking away tax, national insurance contributions and normal household expenses, your disposable income must be no more than £50 a month.
You must be domiciled (living) in England or Wales, or at some time in the last 3 years have been living or carrying on business in England or Wales.
You must not have been subject to another DRO within the last 6 years.
You must not be involved in another formal insolvency procedure at the time you apply.

b. An informal arrangement or "family arrangement"

If you know that you cannot pay all your debts, you could consider writing to your individual creditors to see if you can reach some compromise. Include a timetable of when you will repay them. The disadvantage with an informal arrangement is that it is not legally binding so your creditors could ignore it later and ask you to pay in full. Your local Citizens Advice Bureau can advise and help you make this kind of arrangement.

c. Administration orders

If one or more of your creditors has obtained a court judgment against you, the county court may make an administration order. Administration is a court-based procedure whereby you make regular payments to the court to pay towards what you owe your creditors. Your total debts must not be more than £5,000 and you will need enough regular income to make weekly or monthly repayments. You do not have to pay a fee for an administration order but the court will take a small percentage from the money you pay towards its costs. If you do not pay regularly, the order could be cancelled and you may become subject to the same restrictions as someone who is bankrupt. If your circumstances change and you cannot pay as ordered, you can apply to the court to change the order. The court which made the order will tell you what to do. Details of administration orders are available at your local county court.

d. Individual voluntary arrangements

This is a formal version of the arrangement described at (a). An individual voluntary arrangement begins with a formal proposal to your creditors to pay part or all of your debts. You need to apply to the court and you must be helped by an insolvency practitioner. Any agreement reached with your creditors will be binding on them.

How does it work?

· Contact us to find a suitable authorised insolvency practitioner prepared to act for you.
· They will then apply to the court for an "interim order". This prevents your creditors from presenting, or proceeding with, a bankruptcy petition against you while the interim order is in force. It also prevents them from taking other action against you during the same period without the permission of the court.
· The insolvency practitioner tells the court the details of your proposal and whether in his or her opinion a meeting of creditors should be called to consider it.
· If a meeting is to be held, the date of the meeting and details of the proposals are sent to your creditors. Only those creditors who had notice of the meeting are bound by the arrangement, so it is important that you have accurate records of all your creditors’ names and addresses. Otherwise, the arrangement might fail because the practitioner cannot contact all the creditors and, therefore, bind them to it.
· At the meeting, the creditors vote on whether to accept your proposals. If enough creditors (over 75% in value of the creditors present in person or by proxy, and voting on the resolution) vote in favour, the proposals are accepted. They are then binding on all creditors who had notice of, and were entitled to vote at, the meeting.
· The insolvency practitioner supervises the arrangement and pays the creditors in accordance with the accepted proposal.

Are there any restrictions?

Generally speaking no, but the court cannot make an interim order if you have applied for one in the previous 12 months. There is no maximum or minimum level of debt and no maximum or minimum level of repayments, except what is acceptable to your creditors. An arrangement might particularly suit you if:

· you have friends or relatives prepared to help pay or contribute towards paying your debts;
· your income enables you to pay regular sums to creditors.

What are the advantages of an individual voluntary arrangement compared to going bankrupt?

· It gives you more say in how your assets are dealt with and how payments are made to creditors. You may be able to persuade your creditors to allow you to retain certain assets (such as your home). You will obviously have to act responsibly and flexibly in order to reach agreement with your creditors.
· You avoid the restrictions which apply to a bankrupt
· Because you will not have to pay some of the fees and expenses which are charged in a bankruptcy, the overall costs are likely to be less.

Can an individual voluntary arrangement be proposed by a member of a partnership?

Yes. You can propose an individual voluntary arrangement on your own which must take into account the claims that the creditors of the partnership have against you personally. It will not affect the rights of the partnership creditors to take action against the partnership itself or against any other partner.

Alternatively, you and your partner(s) may wish to propose an arrangement involving the partnership creditors and the personal creditors of the partners. This can be done in two ways:

· the partners may propose interlocking voluntary arrangements, with each partner making proposals for their own debts and the debts of the partnership; or
· the partnership may propose a partnership voluntary arrangement (usually accompanied by voluntary arrangements for each partner).

An authorised insolvency practitioner must help you to make proposals to creditors. He or she will be able to advise you which procedure to follow.

Warning: If you enter a voluntary arrangement but fail to give full details of your assets and debts or fail to do what you have agreed under the arrangement, then the insolvency practitioner, or any creditor bound by it, may still petition for your bankruptcy

Please contact us for further information

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