Top 10 Most Used Insolvency Terms

Personal Insolvency can be very confusing, especially if you are considering it and do not know which option is best for you.

If your debts outweigh your assets (i.e.: value of your house) and making repayments is impossible, then you might be considering insolvency.

Our list, of the most used insolvency terms in England, Wales and Northern Ireland, should help you to get your head around the difference between the types of personal insolvency and what the fine print means.

Bankruptcy

Being declared bankrupt, means that you are unable to meet your financial obligations.

Here your Creditors write off your debts, but you will need to pay £510. From this fee, £150 will pay the courts for their time and £450 goes to the official receiver.

If you are earning a low income then you could be exempt from paying the court fee. It is worth noting that Bankruptcy usually lasts a year and during this time you will not be able to get any credit and may have to sell valuable assets - only keeping things for day-to-day living.

IVA (Individual Voluntary Arrangements

This is a legally binding agreement between you and your creditors, where you commit to paying them an amount on a monthly basis. The monthly payments are usually stretched over five years and ensure that your creditors get back an agreed percentage of your debts.

If you take out an Individual Voluntary Arrangement your creditors cannot chase your nor can they add interest to the amount owing. An Insolvency Practitioner will draw up your IVA contract, talking to your creditors and supporting your throughout.

DRO (Debt Relief Orders)

A Debt Relief Order costs just £90 and helps people who are in serious financial difficulty.

To qualify for a DRO you must:
* Not own your home
* Not have assets worth more than £300 (car worth up to £1000 is exempt)
* Have less than £15,000 debts
* Have less than £50 surplus income every month

If you take out a DRO your debts will be frozen for 12 months and like with an IVA creditors will not chase you or add interest to your debts. It is possible that after a year you will be able to start making payments, however, if this is not the case then your debts are written off.

Creditors

A creditor is someone or a business who you owe money to. If you can, it is always worth contacting your creditors first to see if you can come to an arrangement without enlisting legal help. If you need help liaising with them, because legal proceedings have already begun then contact an Insolvency Practitioner who will advise you of your options.

Debtors

A debtor is an individual or a company who is in debt to another party. You may not be able to pay your creditors within 30 days but require their services. This results in mounting debts. If you are a debtor struggling with your finances, then it is worth speaking to a financial advisor, who can talk you through your options.

Assets

Assets are anything that can be used to pay off debts. This could mean selling off a car or a property, including your home. Freeing up assets means that you can start to pay off accrued debts.

Administration order

This is when a country court arranges and administers the payments of debts by an individual.

Official Receiver

If you declare personal insolvency, the official receiver is an independent and impartial party who is appointed by the court to temporarily take charge of the money. They oversee the meetings with creditors and work as a provisional liquidator.

Attachment of Earnings

This is an order that directs the employer of the debtor to how much they should duduct on a regular basis from the debtor's salary. This sum is them paid to the courts.