About insolvency

Insolvency is another name for bankruptcy. In fact, its one of several different ways to have your debts written off. Consequently, you get a fresh start.

Sounds great. However, there are serious consequences. You’ll find it hard to get credit for many months, even years. In a small minority of cases you could even lose your job.

If you are thinking about declaring yourself insolvent you should seek advice.

Different types of insolvency

Bankruptcy is only one type of insolvency. It costs nearly £700 to declare yourself bankrupt. If you’ve got assets, like a home, you could lose them. Think carefully about declaring yourself bankrupt. The Money Advice Service has produced a helpful guide to read before you take action.

Debt Relief Orders (DROs)

DROs are a form of lighter bankruptcy. However they still have an impact on your ability to get credit. As with any bankruptcy – if you’re a tenant make sure there’s no clause prohibiting you from holding the tenancy if you are insolvent.

Debt Relief Orders are designed for those on lower incomes with less than £75 (£50 in Northern Ireland) spare money each month and under £2,000 in assets (£1,000 in Northern Ireland).

DROs are far cheaper than bankruptcy – £90. You can get up to £30,000 (£20,000 in Northern Ireland) of qualifying debts written off . But remember – not all debts qualify. Student loans, magistrates court fines are amongst those excluded.

Like bankruptcy – a DRO typically lasts one year. Read more about Debt Relief Orders.

Individual Voluntary Arrangements (IVAs)

Although typically lasting a lot longer (5 years), an IVA protects your property, including your home. There are higher fees to pay (more than £5,000). After paying off your debts for around five years, any outstanding balances will be written off. That is, you’ll only pay pennies in the pound back. Read more about IVAs.

Be careful: the impact of insolvency is wide ranging

If you were to ever consider going insolvent you should seek professional advice. Insolvency can have big consequences. For your home. For your job. And for access to banking and credit facilities.

If you are thinking of going bankrupt or have been bankrupt recently our turnaround plan will help. If you’ve been threatened with bankruptcy seek advice. You’ll find our guide on preventing insolvency helpful. If you were insolvent a long time ago, but still find it hard to access credit, read our guide on getting back on track.


Leave a Comment