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Personal Insolvency and the Management of Debt Services from Sinclair Harris

Personal Insolvency

It is estimated that in the United Kingdom, over four million people have personal solvency problems. It may be due to exceptional problems such as periods of unemployment or “credit card snowballing”. In any event, it usually leads to the individual having sleepless nights and much worry. The problems continues because it has been allowed to continue in that you can borrow from one credit card to pay off another and borrow from banks to consolidate loans, but not actually deal with the principle of the debt.

NOW DEAL WITH THE PROBLEM BEFORE IT DEALS WITH YOU!

We are fully authorised and regulated by BERR (The Department for Business, Enterprise and Regulatory Reform - formerly known as the DTI) to help consumers negotiate with their lenders to resolve their debt problems.

There have been numbers of credit consumer groups who will “deal” with the credit companies, but they do not actually have any legal sanction to stop the interest or reduce the amount of the principle outstanding. The best procedure to stop interest and write off debts is by entering into an Individual Voluntary Arrangement (IVA).

1. Individual Voluntary Arrangement.

An Individual Voluntary Arrangement is a bespoke binding agreement that we will draft on your behalf that is a contract between you and your creditors. An Individual Voluntary Arrangement (IVA) is in many ways preferable to bankruptcy as it is beneficial both to creditors because of the lower costs, and to a debtor because it avoids the stigma of Bankruptcy.

What is an IVA?

An IVA is a Court endorsed contract between a debtor and his creditors which is overseen by a Supervisor who must be a Licensed Insolvency Practitioner. IVAs are not advertised in the press although there is a register maintained by the DTI which is open for inspection by the public.

We assist debtors in drafting their Proposals to the general body of their creditors. Generally the Proposals will be that the debtor will pay monthly payments into a scheme for a number of years and those funds will be held in Trust that will eventually be distributed to the creditors in full and final settlement of the debtor’s liability. There are other forms of IVA Proposals whereby a third-party may make a ‘one-off contribution’ into the scheme for the benefit of the creditors or where an asset may be sold for the benefit of creditors.

Creditors are given notice of a meeting at which the IVA Proposals will be voted upon. Creditors will be given a Proxy form to complete (if they did not wish to attend in person) and a Proof of Debt form on which they should complete in order to give details of the amount that they are owed. At the Creditors Meeting, if 75% in value of those creditors express an opinion to accept your Proposals, then it is legally binding on all creditors who are given notice of the meeting. Creditors who are associated with the debtor (e.g. family members) have slightly different voting rights.

Interim Order

If a creditor is being pursued by a landlord or a bailiff who is about to seize goods against the debtor, then it is possible to halt proceedings whilst the Meeting of Creditors is being convened by obtaining an Interim Order from the Court.

Creditors Meeting

At the Creditors Meeting, the creditor may propose modifications to the Proposals such as extending the period of time when the monthly contributions are made or increase the amounts to be paid. A debtor does not have to agree to these modifications but it may affect whether a creditor will support the scheme.

Two other matters should be brought to the attention of any potential debtor who is thinking of entering into an Individual Voluntary Arrangement. Firstly creditors may wish for the debtor’s house to be re-valued or sold and any potential equity owned by the debtor be paid into the scheme for the benefit of the creditors. Secondly all Individual Voluntary Arrangements are monitored by credit agencies and therefore entering into a Voluntary Arrangement may affect the credit worthiness of the debtor for up to six years.

2. Bankruptcy

This is one option available to individuals who cannot pay their debts. This is Court driven process whereby the debtors assets are distributed to creditors either by the Official Receiver (an executive department of the DTI) or by a Trustee in Bankruptcy who is an Insolvency Practitioner who will act on behalf of creditors. Bankruptcies can be instigated either by the debtor or by third-parties who are owed money.

3. Partnership Voluntary Arrangements

This is appropriate where a partnership with a relatively large number of partners who cannot pay their debts enter into an agreement with the partnership's creditors, to repay the debts or a portion of those debts. This prevents the Bankruptcy of individual partners and can mean that their personal assets are usually excluded the payments terms acceptable to creditors. Often the sum of the whole is much greater than the sum of parts and therefore Partnership Voluntary Arrangements are successful in that the goodwill of the firm can be retained.

4. Direct proposal to the creditors

All being said and done the first thing a person with large, unserviceable debts should do is to contact the lenders directly to explain their financial problems. In most instances, lenders would prefer to make alternative payment plans with you rather than risk losing their money by seeing you being made bankrupt.

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Sinclair Harris is fully regulated by the Department of Trade & Industry (Berr), are Members of the R3 Association of Business Company Professionals, as well as the Institute of Chartered Accountants of England and Wales. We have helped hundreds of businesses and individuals in the past and understand their problems.

is proud to be associated with

The Institute of Chartered Accountants of England and Wales

R3 - Association of Business Recovery Professionals