Should I consider insolvency?
It is unlikely that you would need to declare insolvency the very first time you're unable to make a payment, but if the situation continues for some time – or you owe far more money than you could reasonably afford to repay –it might become an option to consider.
Declaring insolvency usually affords you some protection from the actions of your creditors. It lets the courts (or an insolvency practitioner) intervene and decide, as a neutral party, how best to resolve your debt.
There are four main options for 'declaring insolvency', which generally correspond to how severe the situation is. The key facts for each are presented below.
⏩ An Administration Order is a way to deal with debt if you have a CCJ against you and you can't pay in full.
⏩ The debt must be less than £5,000 and owed to two creditors or more.
⏩ There is a court fee each time you make a payment, which can't be more than 10% of your debt.
⏩ Creditors listed on the administration order can't take further action against you without the Court's permission.
⏩ Does not require a solicitor or insolvency practitioner.
⏩ Cheaper than bankruptcy and does not require the individual to surrender their assets.
Debt Relief Order
⏩ A 'DRO' is a way to deal with your debts if you owe £20,000 or less, and you have few valuable assets (worth less than £1000) and a low income.
⏩ Usually lasts for a year, but can be extended and can be cancelled if your finances improve or if you fail to cooperate with the official receiver. After this time the debts listed on the order may be written off and your creditors will be unable to recover their money.
⏩ You must follow the rules and restrictions which apply with a DRO, such as not being able to borrow more than £500 without telling the lender about your DRO.
Individual Voluntary Arrangement
⏩ IVA is an agreement with your creditors to pay all or part of your debts.
⏩ IVA is most commonly used by individuals with debts of £10,000 or more and who have more than £100 per month to put toward repayments.
⏩ Assets don't become property of the court, so may be more appealing for homeowners.
⏩ Usually lasts for five or six years.
⏩ You can apply for bankruptcy yourself or a creditor can apply to make you bankrupt if you owe more than £5,000.
⏩ Usually a last resort when all other options are unsuitable, for people who owe large amounts and have very few assets of value.
⏩ A court official will take control of the assets and decide what to sell to repay the debts.
⏩ Usually, after one year, any remaining unsecured debt is normally written off
Make sure you know how much it's going to cost before asking an insolvency practitioner to act on your behalf.
You can find out more details about each of these arrangements on our Bankruptcy Guide Page. An Administration Order might be viewed less negatively by a lender than, for example, a bankruptcy, but all of the above insolvency forms will impact an ability to get affordable credit.
You therefore might be rejected for credit cards if you have undergone any of the above insolvency forms in the last six years.
Vanquis offers credit cards designed to help people rebuild their credit ratings by setting sensible limits on spending, which can offer a way for people who have been declared insolvent to get back on their feet.