Personal Insolvency options in England

When your debts become unmanageable

If you have reached a point where you simply cannot pay back what you owe, you are not alone and you are not out of options. Insolvency means you are unable to pay your debts as they fall due. It sounds frightening, but there are formal legal processes designed to help you deal with the situation and, in many cases, get a fresh start.

In England, there are three main options for dealing with personal debt when you cannot afford to repay it. These apply to you as an individual, and also if you are a sole trader or in a business partnership. Each option works differently and has different consequences, so it is important to get advice before choosing one.

Bankruptcy

Bankruptcy is a formal legal procedure for when you are unable to pay your debts. Here is how it works:

• You apply to the court (or your creditors can apply to make you bankrupt)
• Your assets (things you own of value) are shared among your creditors to pay off as much of your debt as possible
• Most remaining debts are written off after 12 months
• During the bankruptcy period, there are restrictions on what you can do financially (for example, borrowing money or acting as a company director)

Bankruptcy can feel like a last resort, but for some people it is the quickest route to clearing unmanageable debt. It does have serious consequences, including the potential loss of your home or other assets, and it will affect your credit rating for six years.

Individual Voluntary Arrangement (IVA)

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors to pay back all or part of your debts over a set period, usually 5 to 6 years. It is an alternative to bankruptcy.

• You make regular, affordable payments based on what you can realistically afford
• At the end of the agreement, any remaining debt included in the IVA is written off
• Your creditors must agree to the arrangement (at least 75% by debt value must approve it)
• An insolvency practitioner manages the IVA on your behalf

An IVA can protect your assets (such as your home) in a way that bankruptcy may not. However, it is a long commitment and will also affect your credit rating.

Debt Relief Order (DRO)

A Debt Relief Order (DRO) is a low-cost alternative for people with low income, limited assets, and debts typically under £50,000. It is designed for situations where you have very little money coming in and no realistic way to pay your debts.

• A DRO lasts for 12 months
• During that time, your creditors cannot chase you for payment
• At the end of the 12 months, the debts included in the DRO are written off
• You apply through an approved intermediary (such as a debt adviser), not directly through the court

A DRO is often the most suitable option for young people who do not own property or have significant assets.

Which option is right for you?

There is no single answer. The right option depends on how much you owe, what assets you have, your income, and your personal circumstances. Making the wrong choice can have long-term consequences, so it is important to get proper advice first.

Do not apply for any of these options without talking to a debt adviser. We can help you understand the full picture and work out which route gives you the best outcome.

Get help

• Email us at info@youthlegal.org.uk
• Call us on 020 3195 1906
• Fill in our contact form and we'll get back to you

All our advice is free and confidential. You can also find detailed information at GOV.UK insolvency options or StepChange.