Alternatives to Bankruptcy
There are many alternatives to Bankruptcy.
The Federal Government offers the following:
a. Debt Relief Orders (From 6 April 2009)
What is a debt relief order (DRO)?
DROs provide debt relief, subject to some restrictions. They are suitable for people who do not own their own home, have small surplus income and assets and less than £15,000 of debt. An order lasts for 12 months. In that time creditors named on the order cannot take any action to recover their money without permission from the court. At the end of the period, if your circumstances have not changed you will be freed from the debts that were included in your order. DROs do not involve the courts. They are run by The Insolvency Service in partnership with skilled debt advisers, called approved intermediaries, who will aid you apply to The Insolvency Service for a DRO.
Is a DRO likely to be suitable for me?
To apply for a DRO, you must meet certain conditions:
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You must be unable to pay your debts.
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You must owe less than £15,000.
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You can own a car to the value of £1000 but the total value of other assets must not exceed £300.
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After taking away tariff, inhabitant insurance contributions and normal household expenses, your disposable income must be no more than £50 a month.
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You must be domiciled (living) in England or Wales, or at some time in the last 3 years have been living or carrying on business in England or Wales.
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You must not have been subject to another DRO within the last 6 years.
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You must not be involved in another formal insolvency procedure at the time you apply.
Further information
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I am interested in obtaining a Debt Relief Order
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I am owed money by someone with a Debt Relief Order
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Frequently Questioned Questions
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Principal restrictions imposed by Debt Relief Restrictions Orders or Debt Relief Restrictions Undertakings
If you still have any queries regarding DROs you can call The Insolvency Service Enquiry Line on 0845 602 9848.
b. An informal arrangement or “family tree arrangement”
If you know that you cannot pay all your debts, you could consider writing to your individual creditors to see if you can reach some compromise. Include a timetable of when you will repay them. The disadvantage with an informal arrangement is that it is not legally binding so your creditors could ignore it later and question you to pay in full. Your local Citizens Advice Bureau can advise and aid you make this kind of arrangement.
c. Administration orders
If one or more of your creditors has obtained a court judgment against you, the county court may make an administration order. Administration is a court-based procedure whereby you make regular payments to the court to pay towards what you owe your creditors. Your total debts must not be more than £5,000 and you will need enough regular income to make weekly or monthly repayments. You do not have to pay a fee for an administration order but the court will take a small percentage from the money you pay towards its costs. If you do not pay regularly, the order could be cancelled and you may become subject to the same restrictions as someone who is bankrupt. If your circumstances change and you cannot pay as ordered, you can apply to the court to change the order. The court which made the order will caution you what to do. Details of administration orders are available at your local county court.
d. Individual voluntary arrangements
This is a formal version of the arrangement described at (a). An individual voluntary arrangement starts with a formal proposal to your creditors to pay section or all of your debts. You need to apply to the court and you must be helped by an insolvency practitioner. Any agreement reached with your creditors will be binding on them.
How does it work?
· Initially, find an authorised insolvency practitioner prepared to act for you. (Your local court can give the names of local practitioners.) A list is also available for you to look at in your local Authoritative Receiver’s office.
· Then you apply to the court for an “interim order”. This prevents your creditors from presenting, or proceeding with, a bankruptcy petition against you while the interim order is in force. It also prevents them from taking other action against you during the same period without the permission of the court.
· The insolvency practitioner tells the court the details of your proposal and whether in his or her opinion a meeting of creditors should be called to consider it.
· If a meeting is to be held, the date of the meeting and details of the proposals are sent to your creditors. Only those creditors who had notice of the meeting are bound by the arrangement, so it is valuable that you have accurate minutes of all your creditors’ names and addresses. Otherwise, the arrangement might fail because the practitioner cannot contact all the creditors and, therefore, bind them to it.
· At the meeting, the creditors vote on whether to accept your proposals. If enough creditors (over 75% in value of the creditors present in person or by proxy, and voting on the resolution) vote in favour, the proposals are usual. They are then binding on all creditors who had notice of, and were entitled to vote at, the meeting.
· The insolvency practitioner supervises the arrangement and pays the creditors in accordance with the usual proposal.
What will an individual voluntary arrangement cost?
You should question several practitioners what they charge before you question any of them to act for you. Insolvency practitioners are usually accountants, some are solicitors and their fees are akin to those charged by members of these professions for other kinds of work.
When can you make an individual voluntary arrangement?
It is better and cheaper for you to set up an individual voluntary arrangement before you become bankrupt but you can propose one afterwards. If you do propose an individual voluntary arrangement after bankruptcy, it is doable for you to nominate the Authoritative Receiver to be the supervisor of the arrangement. This type of arrangement is called a quick-track voluntary arrangement and is only suitable in certain cases (a separate publication called ‘Quick-track voluntary arrangements’ is available from your local Authoritative Receiver’s office).
Are there any restrictions?
Generally speaking no, but the court cannot make an interim order if you have useful for one in the previous 12 months. There is no maximum or smallest level of debt and no maximum or smallest level of repayments, apart from what is acceptable to your creditors. An arrangement might particularly suit you if:
· you have friends or relatives prepared to aid pay or contribute towards paying your debts;
· your income enables you to pay regular sums to creditors.
What are the advantages of an individual voluntary arrangement compared to going bankrupt?
· It gives you more say in how your assets are dealt with and how payments are made to creditors. You may be able to persuade your creditors to allow you to retain certain assets (such as your home). You will obviously have to act responsibly and flexibly in order to reach agreement with your creditors.
· You avoid the restrictions which apply to a bankrupt.
· Because you will not have to pay some of the fees and expenses which are charged in a bankruptcy, the overall costs are likely to be less.
Can an individual voluntary arrangement be proposed by a member of a partnership?
Yes. You can propose an individual voluntary arrangement on your own which must take into account the claims that the creditors of the partnership have against you personally. It will not affect the rights of the partnership creditors to take action against the partnership itself or against any other partner.
Alternatively, you and your partner(s) may wish to propose an arrangement involving the partnership creditors and the personal creditors of the partners. This can be done in two ways:
· the partners may propose interlocking voluntary arrangements, with each partner making proposals for their own debts and the debts of the partnership; or
· the partnership may propose a partnership voluntary arrangement (usually accompanied by voluntary arrangements for each partner).
An authorised insolvency practitioner must aid you to make proposals to creditors. He or she will be able to advise you which procedure to follow.
Warning: If you enter a voluntary arrangement but fail to give full details of your assets and debts or fail to do what you have agreed under the arrangement, then the insolvency practitioner, or any creditor bound by it, may still petition for your bankruptcy.
Further, the additional information is suggested:
Do not ignore your creditors’ letters of demand and statutory demands, or writs of summons from the court. This will only compel the creditors to commence bankruptcy proceedings against you. You can be made an insolvent person even if you refuse to respond to your creditors or accept service of legal documents.
Here are some reasons why you should avoid bankruptcy:
* social shame on being declared a bankrupt;
* your assets become vested in the OA and divisible among creditors;
* statutory requirement to file statements of affairs and income and expenditure statements, and thorough investigations by the OA into bankrupts’ financial affairs;
* monthly payments to bankruptcy estate for the subsidy of the creditors;
* disclosure of bankruptcy if obtaining credit of more than $500 from others;
* restriction on overseas travel; and
* inability to manage business or act as director of companies without approval of court / Authoritative Assignee.
So What Are The Alternatives For Debtors?
Confidential Arrangements
Enter into confidential arrangements with your creditors to pay debts by instalments, or to reschedule your repayments, or to give you extension of time to liquidate assets or seek other financial sources to repay your debts.
Inform your creditors truthfully and completely of your latest financial position. Provide information and documentary evidence readily to prove your current financial position.
Do not make empty promises after you have entered into alternative repayment arrangements. You must make serious efforts to keep to the new repayment arrangements.
Propose Voluntary Arrangement
Besides confidential arrangements, you may also apply to court for an interim order for voluntary arrangement under Section V of Bankruptcy Act. You must tell your assets and liabilities, and make proposal on how you intend to settle your debts with various creditors. If your proposal is usual by creditors and implemented successfully, it would subsidy both you and your creditors.
Court Dispute Resolution
If you are being sued by your creditors in civil proceedings, you may negotiate for a settlement on repayment of debts and thereby avoid bankruptcy in due course.
Seek Oral Legal Advice
This information sheet is by no means exhaustive on bankruptcy matters. You may wish to consult your solicitor carefully before making any choice concerning bankruptcy matters. If you are unable to engage a solicitor, you may obtain oral legal advice from the Legal Bolster Bureau, at the following address:
The URA Centre, East Wing
45 Maxwell Road, #08-12, Singapore 069118
Tel: 1800-3251424
Over and above that, working with companies or individuals that have the capabilities – Seek to negotiate a settlement for your debts. Even half of the amount owed or less can be negotiated.
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