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© Grant Thornton International. All rights reserved. Choosing the appropriate option for Personal Insolvency Bank IVA and DRO screenshow.pptx
© Grant Thornton International. All rights reserved. Insolvency statistics 2nd Quarter of ,515 insolvencies in England and Wales –2.2% decrease on same period as last year 11,113 bankruptcies –25.8% decrease on same period as last year 12,143 IVAs –9.8% decrease on same period as last year 7,527 DROs –15.3% increase on same period as last year
© Grant Thornton International. All rights reserved. Bankruptcy Debtor's own petition = £700 –consists of deposit and court fee –possible exemption from court fee if in receipt of certain benefits Creditor's petition –effects of bankruptcy are the same –only likely where the debtor has significant assets Some debts survive bankruptcy Court fines –arrears of child maintenance –criminal court orders –student loans
© Grant Thornton International. All rights reserved. Assets All ‘property’ as defined in Insolvency Act 1986 ‘vests’ in the Trustee Property will include: –endowments –ISAs and Tessas –savings, bonds and shares –all cash assets
© Grant Thornton International. All rights reserved. Assets Certain key exemptions: –items for basic domestic needs –income for reasonable domestic needs (however where surplus income exceeds £20, an IPA/IPO will be sought and can run for a maximum of three years) –tools of trade (often a vehicle for getting to and from work) –pensions –compensation awards in respect of paid and suffering
© Grant Thornton International. All rights reserved. The home Bankrupt's equitable interest has to be realised within 3 years Can be done in a number of ways: –third party lump sum –spouse re-mortgage and purchase of bankrupt's interest –property sold voluntarily –forced sale of the property –Section 313 charge (if sale not cost-effective) Equitable interest: –less than £1000 – Official Receiver will wait for three years to try to realise –greater than £ – bankrupt's family has occupation rights for 12 months, after which creditors' interests take priority
© Grant Thornton International. All rights reserved. Effects of bankruptcy Order may not be advertised in the local press Will be published in the Gazette and in the online Insolvency Register Employment: –impact on profession (check contract, contact professional body, seek independent legal advice) –cannot act as a Company Director –self-employed individuals may have difficulty in obtaining trade credit
© Grant Thornton International. All rights reserved. Effects of bankruptcy Tax code change Bank accounts – operate at bank discretion Future credit – disclose bankrupt status if borrowing more than £500 Credit Reference agencies – record for six years from date of order Discharged in a maximum of 12 months (but note that an IPO/IPA will continue for agreed period) Bankruptcy Restriction Orders/Undertakings: –dishonesty/recklessness –extended restrictions for between 2-15 years
© Grant Thornton International. All rights reserved. Individual Voluntary Arrangements Background Statutory alternative to bankruptcy Repayment of a percentage of debt over a fixed period Legally binding arrangement All interest/charges are frozen Stay on all legal action by unsecured creditors - no contact/enforcement Possible to negotiate about how assets are realised (eg re-mortgage rather than sale of house) Incorporates ‘debt forgiveness’
© Grant Thornton International. All rights reserved. Individual Voluntary Arrangements Criteria Insolvent (unable to pay debts as and when they fall due) Unsecured debts –typically more than £15,000 –amounts owed to at least two unsecured creditors Ability to make offer to creditors –regular income –reasonable disposable earnings
© Grant Thornton International. All rights reserved. Individual Voluntary Arrangements What they involve Contributions Monthly amounts Potential for stepped payments during lifetime –no minimum monthly contribution –five year forecast with: child care costs benefit changes HP/finance payment End result achieves desired return to creditors
© Grant Thornton International. All rights reserved. Individual Voluntary Arrangements What they involve Lump sums Disposable income is low/non-existent Third party offer – family/friend Endowment Pension lump sum Compensation lump sum Savings
© Grant Thornton International. All rights reserved. Individual Voluntary Arrangements Protocols and equitable interest Came into force on 1 February 2008 Represents current best practice Result of input from all stakeholders in IVA process Introduced new approach to realising a client's equitable interest in property: –equitable interest to be calculated six months before IVA due to complete –if less than £5,000, any interest becomes an excluded asset and does not need to be realised –IVA would simply complete in final month of contract term
© Grant Thornton International. All rights reserved. Individual Voluntary Arrangements Protocols and equitable interest If equitable interest greater than £5,000, then the debtor is obliged to attempt to re-mortgage Re-mortgage criteria: –maximum 85% loan to value –re-mortgage must be repayment in nature –cannot have extension to existing mortgage term –increase in monthly mortgage payment cannot exceed 50% of the monthly IVA contribution amount
© Grant Thornton International. All rights reserved. Individual Voluntary Arrangements Protocols and equitable interest Re-mortgage subject to following terms –age (at retired age no re-mortgage expected) –affordability –multiples of earnings –market conditions –credit check
© Grant Thornton International. All rights reserved. Individual Voluntary Arrangements Protocols and equitable interest If debtor cannot secure a re-mortgage facility: –possible extension of IVA by 12 months –further 12 monthly payments to be made or –third party can make contribution or –debtor can put forward alternative
© Grant Thornton International. All rights reserved. Debt Relief Orders (DRO) Introduced in April 2009 Aimed at providing a solution for clients with: –low income –few assets Criteria: –debts of less than £15,000 –assets of less than £300 –a car worth less than £1,000 –less than £50 disposable income each month £90 fee - can be paid over six month instalment period
© Grant Thornton International. All rights reserved. Debt Relief Orders (DRO) Effects Essentially same as bankruptcy order If circumstances change during term, can be revoked Debtor's name will appear on the Individual Insolvency Register Credit file impaired Rent arrears must be included in the DRO
© Grant Thornton International. All rights reserved. Debt Relief Orders (DRO) Effects Debt Relief Restriction Order can be obtained: –places restrictions for a period of 2-15 years –failure to co operate with Official Receiver can give grounds Some debts survive DRO: –magistrates' court fines –child support and maintenance payments –student loans –debts incurred through fraud
© Grant Thornton International. All rights reserved. Contact Jane Lodge Manager M E Choosing the appropriate option
© Grant Thornton International. All rights reserved. Thank you for your attention Any questions?
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