Insolvency

Insolvency for an individual doesn't have to lead to bankruptcy. There are alternatives including:

• informal arrangements
• administration orders
• individual voluntary arrangements
• debt relief orders

Informal arrangements

These involve contacting your creditors to get an agreement regarding repayment of your debt. Informal arrangements are not legally binding.

Individual voluntary arrangements (IVA)

An IVA is where an insolvency practitioner helps formalise the arrangements with your creditors.

Administration orders

Administration orders require you to make regular payments to your creditors. You must not owe more than £5,000.

Debt relief orders

A debt relief order is for people who cannot pay their debts. It applies to those who have few assets, a low income and no other access to debt relief.

What is your best option?

The best option for you will depend on your individual circumstances. It will also depend on how much you owe and how much you can repay after your basic living expenses.

Whatever option you choose, you should be aware that:

• The rights of secured creditors are not affected - for example, a bank that has a mortgage or legal charge over your home can claim the proceeds if the property is sold.
• Most debts involving credit and loans are unsecured - if you don't pay the debt, the creditor is not automatically entitled to take something of yours, such as your home. But, they may secure a judgment on your home using a charging order.
• Your credit rating may be affected - they may show up on your credit record.
• Your employment may be affected - check the terms of your employment, you may have to inform your employer.