There are a number of alternatives to bankruptcy, but in each case the creditor is prohibited from taking action to recover the sums due, including enforcement of a Judgement. In some case accruing interest will have to be written off.
An IVA is a legal procedure for people in financial difficulty who have unsecured debts.
The debtor will approach an Insolvency Practitioner (IP) to arrange an individual voluntary arrangement. He will assess the debtor's finances and send a proposal to those creditors who hold your unsecured debt. The proposal to creditors will include all available income (after deduction of household bills) which will be used to make monthly payments to them through an IVA solution. These payments will take place over an agreed period, which is usually five or six years. Sometimes a lump sum may also be paid or a combined lump sum with a monthly payment. Once the debtor has made all the agreed payments any remaining debt is then written off.
To decide whether the IVA goes ahead, a creditors’ meeting is called and a vote is taken. Creditors representing at least 75% (in value) of those who vote need to vote in favour of the IVA proposal for it to go ahead.
IVA's are not formally advertised, although members of the public can search and the information is readily available. The involvement of the court is minimal and the Official Receiver is not involved. The IP (known initially as the Nominee and later as the Supervisor) is responsible for informing declared creditors and calling a meeting.
Once the IVA is approved, creditors are unable to take any legal action to recover the debt. A fee is payable but this is included as part of the original monthly repayment when the proposal is agree.
If a debtor meets the criteria they will be placed into a 12 month ‘moratorium period'. During this year their debts will still exist but the courts will notify creditors of the DRO. The debtor is not obliged to make payments to creditors and creditors are prevented from recoverying their debt.
A debtor is unable to apply for a DRO if they own heritable property. This also applies even if they have negative equity.
The criteria to apply for a DRO is
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