Personal

Individual Voluntary Arrangement

An Individual Voluntary Arrangement (IVA) is a mechanism by which to avoid bankruptcy. It is a legal process which gives an individual struggling with their debts protection from their creditors.

Panos Eliades Franklin & Co can assist the debtor in formulating a proposal (the Proposal”) to their creditors to repay their debts in whole or in part.

The Proposal must be achievable, and creditors will expect to recover a substantial amount and certainly the same, if not more, than they would if the debtor was declared bankrupt. Additionally, the Proposal must include certain sanctions, such as a right to bankrupt the debtor should the IVA fail.

A creditors’ meeting will be held in order for the Proposal to be voted on by the creditors. If a majority of 75% or more, by value, of the creditors approve the Proposal, the IVA will proceed for implementation.

Creditors can put forward changes to the Proposal (“modifications”), but it is the debtor’s right to accept them or not.

The Proposal is a contract between the debtor and the creditors, and once it has been approved by the creditors it is legally binding.

A useful and informative leaflet entitled ‘Is a voluntary arrangement right for me’ is available to download here.

Bankruptcy

Bankruptcy is the administration of the financial affairs of an insolvent individual in the interests of creditors by a person known as a Trustee in Bankruptcy, who will be the Official Receiver or a licensed insolvency practitioner.

An application to court for a bankruptcy order may be made by any creditor owed more than £750, or by the individual himself.

Once a bankruptcy order is made by the court, control of the bankrupt’s assets, subject to certain exemptions, passes to the Trustee in Bankruptcy. However, certain assets do not pass to the Trustee, including the tools and equipment needed for use in the bankrupt’s business and basic domestic items such as clothing, bedding and furniture. In addition, pension assets may be retainable by the bankrupt.

If the bankrupt has equity in his home, that equity also passes to the Trustee and usually, the property will have to be sold. However, the Trustee cannot force a sale within the first 12 months of the bankruptcy where the bankrupt is married and lives with his spouse, or where he has young children living with him. The bankrupt’s spouse is generally given the opportunity to purchase the Trustee’s interest in the property at its current market value, before the Trustee forces a sale.

If the bankrupt has surplus income above his reasonable needs and those of his dependents, then he will be expected to make contributions from his income to the Trustee for the benefit of the creditors for up to 3 years.

A bankrupt is usually discharged from bankruptcy after 1 year, but it could be sooner should the official receiver deem it appropriate. However, the trustee will remain in office for as long as is necessary to realise the assets and distribute the net-of-costs proceeds to the creditors.

Once a bankrupt is discharged from bankruptcy, their creditors can make no further claim upon them for a debt incurred before the date that the bankruptcy order was made.

Other consequences of bankruptcy include:

  • An undischarged bankrupt cannot obtain credit of more than £500 without disclosing the fact to the provider of the credit that they are an undischarged bankrupt.
  • An undischarged bankrupt must not carry on business under a name different from that under which they were declared bankrupt.
  • An undischarged bankrupt must not act as a company director without the consent of the court.
  • Their credit rating will be affected.

There are a number of useful and informative publications available to download on the downloads page of this website.

If you wish to discuss any aspect of personal insolvency, or you wish to arrange a free initial consultation, please contact Panos Eliades or Stephen Franklin on 020 8731 6807.