Of all the formal solutions, only bankruptcy can be initiated by either the debtor or the creditor. Some people who are in substantial debt may prefer to wait for a creditor to start bankruptcy proceedings to avoid paying the cost of bankruptcy themselves, however, there is no guarantee a creditor will make you bankrupt. Some creditors are more likely to take this course of action than others, for example, HMRC can bankrupt those with tax debts while councils tend to use bailiffs to recover council tax and other creditors such as banks and debt purchasers will usually issue a claim in the county court instead.InfoIVAs, DROs and Administration Orders can only be requested by the debtor.
Formal solutions include:
- Bankruptcy: Suitable for people with large amounts of debt, even though the minimum is just £5,000. If you are a homeowner, your home may have to be sold. Some other assets may also have to be sold.
- Debt Relief Orders (DROs): Suitable for people on low incomes with few assets and debts below £20,000. Not suitable for homeowners. Cheaper than bankruptcy.
- Individual Voluntary Arrangements (IVAs): Suitable for homeowners who, in most cases, can hold on to their property and those with debts over £15,000 who are in a position to make substantial monthly payments towards their debts.
- Administration Orders: Suitable for those with debts below £5,000 and at least one CCJ. Your home and other assets will not be affected.
DROs vs bankruptcy – comparison
DROs and bankruptcy have some similarities but there are also significant differences:
|Much lower cost: just a £90 fee.||High cost: £525 for managing the bankruptcy. £180 for court costs.|
|No option for remission of the fee.||The £525 deposit has to be paid by everyone but you may qualify for remission of the court fee.|
|You can only apply through an approved intermediary.||You can apply for a bankruptcy order yourself, without going through an intermediary.|
|A creditor cannot make you enter into a DRO.||A creditor can petition your bankruptcy if you owe them more than the limit (currently £5,000).|
|Creditors can object to a DRO.||Creditors cannot object to your bankruptcy.|
|A DRO can be revoked if your circumstances change.||A bankruptcy order cannot be revoked.|
|Control of your assets is not transferred.||The official receiver takes control of your assets and some may be sold.|
|No income payments.||Depending on your income, you may have to make payments under an Income Payments Agreement (IPA).|
|Restrictive criteria regarding maximum amounts of debt, income and assets to qualify.||No restrictions regarding assets and no upper limits for debt amounts.|
|A DRO only releases you from debts included in the application.||Releases you from all your bankruptcy debts whether they are listed or not.|
|A DRO is an administrative act.||A bankruptcy order is a judicial act.|