Bankruptcy & IVAs

What it is: The UK equivalent of US Chapter 7 personal bankruptcy is bankruptcy under the Insolvency Act, a formal process for individuals who cannot pay their debts. An alternative is an individual voluntary arrangement, or IVA, a legally binding agreement to repay creditors part of what is owed over a set period. When it applies: These options are relevant when debts have become unmanageable and other solutions, such as informal repayment or a debt relief order, are not suitable. Bankruptcy typically lasts around twelve months before discharge, while an IVA usually runs for a fixed term, commonly around five years. Each has different effects on assets, credit, and certain professions. How a solicitor helps: A solicitor, often working alongside an insolvency practitioner, advises on the most suitable option for your circumstances, explains the consequences for your home and other assets, and helps you understand creditor rights and any restrictions. They can advise on defending or responding to a creditor's bankruptcy petition and on the duties and investigations involved. First steps: Prepare a full list of your debts, assets, income, and outgoings, stop taking on further credit, and seek advice before responding to any petition or signing an arrangement. Free debt advice is also available from reputable charities. Bankruptcy law differs in Scotland, where the equivalent is sequestration.