If an individual owes more than £5,000, a creditor may consider filing a bankruptcy petition. This process typically begins by serving a statutory demand on the debtor. If the debt remains unpaid after 21 days and a certificate of service is completed, the creditor can proceed with a bankruptcy petition through the courts. However, this route is generally only practical if the individual has assets that can be sold to repay the outstanding debts.
How an IVA can offer an alternative
An alternative option is proposing an Individual Voluntary Arrangement (IVA). An IVA is a formal agreement between the debtor and their creditors to repay a portion of the debt over a set period, based on what the debtor can reasonably afford. Only a licensed Insolvency Practitioner (IP) can set up and oversee an IVA. The arrangement must be approved by the court and accepted by creditors holding at least 75% of the debt. Once completed, any remaining unsecured debt is written off. If creditors believe the IVA is not in their best interests, they can reject the proposal and suggest other options.
What creditors can do during an IVA or bankruptcy
If an IVA or bankruptcy is already in place, creditors still have limited actions available:
- In an IVA, creditors receive regular updates and can review the debtor’s progress through annual reports issued by the IP.
- In a bankruptcy, if a creditor holds more than 25% of the total value of debts, they can request that the Official Receiver initiate a decision-making process to appoint a trustee of their choice. Importantly, once bankruptcy proceedings begin, creditors are prohibited from contacting the debtor directly—all communication must go through the Official Receiver or appointed trustee.
