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Personal Insolvency UK: What Is Personal Insolvency?

February 25, 2022 Hasib Howlader Personal Insolvency UK: What Is Personal Insolvency?

We’re often asked here at Hudson Weir, “what is personal insolvency?”.

There are often misconceptions when it comes to insolvency – in part due to terminology, with terms such as debt and bankruptcy used inaccurately and interchangeably. 

There can also be confusion between company insolvency and personal insolvency. Read on for our explanation of what personal insolvency is. 

What is personal insolvency?

Put simply, if an individual has accrued debts that they are unable to pay, they are deemed insolvent.

While this is essentially a question of fact, it is also defined in law within sections 267 and 268 of the Insolvency Act 1986.

These sections of insolvency law lay out the situations in which an individual would be legally regarded as insolvent and as such act as a clear definition of personal insolvency.

The sections state that if an individual is insolvent if they owe creditors upwards of £5,000 and:

  • Has failed to meet a statutory demand to act on the debt within three weeks of it issued (and has not applied for postponement via court)
  • Has not been able to pay debts following attempted execution of the debt via court

Recovering from personal insolvency

Personal insolvency shouldn’t be taken lightly. It can have a significant impact on an individual both personally and professionally. 

Details will be added to the Individual Insolvency Register via the Insolvency Service, becoming a public record of your personal financial history, as well as an individual’s credit file.

However, there are options to mitigate the impact of actual or potential personal insolvency.

An Individual Voluntary Arrangement is a contractual agreement between an individual debtor and their creditors. An individual voluntary arrangement breaks the debt down into more manageable chunks which can be paid over a set period of time – removing the threat of legal action when you’re in financial difficulties.

Note: to pursue this course of action, an individual must have accrued debts of more than £10,000 to two or more creditors (of whom at least 75% must agree to the terms of the agreement).

Bankruptcy is another route for those personally insolvent. There are often misconceptions around bankruptcy proceedings, in part due to the misuse of the term. We’ve written a guide to bankruptcy to help with that.

While a bankruptcy process can result in the clearance of long-standing, seemingly unpayable debts, it is not without significant consequences. Being declared bankrupt can include banning forthwith of an individual taking on any kind of directorship or company officer role in a limited company.

It’s certainly not a route to take without seeking qualified, professional advice. 

A first step, and perhaps less daunting prospect, would be to take on debt advice and to form a debt management plan.

The nature of this will vary from individual to individual, but with the right advice there may be a route to avoid personal insolvency without legal stipulations.

Getting the right insolvency advice

As stated above, personal insolvency in the UK can have a major impact on an individual.

To limit the consequences of insolvency, or ideally avoid it entirely, it’s absolutely vital to speak to an accredited professional. This conversation should take place as early as possible. 

The sooner the process of debt management plans can begin, the potentially lower the personal or professional impact on an individual.

With a team of Chartered Accountants as well as Qualified Insolvency Practitioners, at Hudson Weir we are well placed to assist individuals at whatever stage of their insolvency. 

Our friendly team are available for a no-obligation chat if you’d like to find out more about our offering and how we would tailor an insolvency procedure to your personal circumstances.

Personal Insolvency UK: Additional resources 

Personal insolvency is daunting and while our experienced and understanding team are on hand to assist, we recognise that for some individuals further resources and support may be beneficial – particularly in the early stages of debt concerns.

Organisations such as the Citizens Advice Bureau, the National Debt Line and Step Change all offer free and confidential advice when it comes to matters of insolvency.

For more information about insolvency matters, take a look at our blog. Recently we’ve written a guide to getting a debt relief order – we explain the eligibility criteria here: What is a debt relief order?

For any more information about our insolvency practitioner services, please don’t hesitate to get in touch.

ACCAThe Association of International AccountantsICAEW Authorised Training EmployerICAEW Licensed Insolvency Practitioners (UK)Insolvency Practitioners AssociationR3

Hudson Weir are an established firm of Insolvency Practitioners who specialise in business recovery and corporate financial solutions.

Hudson Weir provides industry leading, nationwide services for its clients with the intention of easing financial pressures and providing recovery strategies for struggling businesses.

Hudson Weir Ltd (Company number 09477593) is a company registered in England and Wales.

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