Alternatives to bankruptcy

There are several formal alternatives to bankruptcy which could provide a solution to serious debt problems.

Administration orders

You can apply to the court for an administration order if:

  • you have at least two debts
  • the total of your debts is less than £5,000, and
  • you have at least one county court judgment (CCJ) against you.

An administration order is a county court order that allows you to make a single payment every month into the court towards repayment of all your debts, instead of paying your debts directly to different creditors. The court will then divide the money between your creditors in proportion to how much they are owed.

An administration order will stop your creditors from taking further action against you, unless they get permission from the court. It will also stop any further interest or charges building up. Once you have cleared your debts, the administration order will come to an end.

If there is no prospect of you repaying all your debts within a reasonable period, normally three years, the court may decide you only have to pay off only a percentage of the debt, and the rest will be written off. This decision is called a composition order.

To apply for an administration order you must fill in form N92 which you need to get from your local county court. Find your nearest court here.

Individual voluntary arrangements (IVAs)

An individual voluntary arrangement (IVA) is a legally binding agreement between you and your creditors that enables you to repay a proportion of your debts through payments you can afford. The agreement is for a set period of time, usually five years. At the end of this period, any outstanding debt is written off.

If you have been served with a statutory demand for payment, you should consider if an IVA will be a better option for you than being forced into bankruptcy, particularly if you have enough income to pay your creditors a significant amount each month.

You will need to act quickly, as your creditor can start bankruptcy proceedings 21 days after the statutory demand is served. When deciding whether to accept the IVA, your creditors will probably consider if they are likely to receive more of the debt through an IVA than they would under a bankruptcy order.

You cannot apply for an IVA yourself. You will need the help of a qualified insolvency practitioner. Always check the costs of using a private insolvency practitioner. It might be better to contact a debt advice charity, as some provide this service for free.

An insolvency practitioner helps you to prepare a proposal for an IVA to put to your creditors and sets up a meeting to allow your creditors to consider your proposal.

The IVA can only go ahead if enough of your creditors agree. You need to obtain the agreement of creditors whose loans add up to at least 75% of the value of your debt. For example, if your overall debts amount to £20,000 and you owe one creditor £10,000 then that creditor’s vote alone is worth 50%.

If you are a homeowner, in many cases an IVA may allow you to keep your home. However, the agreement may involve your creditors taking a share in any equity you may have in your property.

Debt Relief Orders (DROs)

A debt relief order (DRO) may be an option if you have few assets, very little income and are not able to repay your debts within a reasonable time.

A DRO could provide a solution to your debt problems, however there are strict rules that you have to meet to qualify for a DRO. You must:

  • be unable to pay your debts
  • have total debts of £30,000 or less at the date the application is approved
  • have assets worth a total of £2,000 or less
  • not have a car or motor bike worth £2,000 or more (unless it has been adapted because you have a disability)
  • have £75 a month or less spare income after normal household expenses are taken into account
  • live in England or Wales (or have lived or run a business in England or Wales in the last three years), and
  • not have had a DRO in the last six years (although you may still qualify if your DRO was cancelled).

You can find out more about debt relief orders here

You cannot get a DRO if you already have a bankruptcy order or IVA, or had already applied for a DRO in the last six years.

If you obtain a DRO, creditors who are listed in the order will be prevented from chasing you directly for payment and your total debt will be usually be written off after 12 months. You will not be allowed to make direct payments to the creditors included in the order. You will remain liable for some debts that cannot be included in the DRO, such as court fines, child support and student loans.

A DRO can be cancelled if your financial circumstances improve so that you are able to make payments to your creditors.

A DRO is obtained through an application to the Insolvency Service and does not involve the courts. The application needs to be made through a skilled debt adviser working for an approved organisation.

Debt management plans and other solutions

If you can’t afford to make the contractual payments on your debts, a debt management plan set up with the help of a qualified debt adviser could provide a solution to your debt problems. These plans are set up without involving the courts and only cover unsecured debts.

Get advice about debt and alternatives to bankruptcy

Get advice if you need help with bankruptcy or other solutions to debt. Contact Shelter Cymru’s expert debt advice service – there might be a debt advice surgery near you or you can contact them by phone or email.

Citizen’s Advice have lots of helpful information on all of the above solutions on their website.

Alternatively, you can contact National Debtline or Step Change.

Phone an adviser

If you have a housing problem, call our expert housing advice helpline
08000 495 495

Email an adviser

If you have a non-urgent problem and would like to speak to an advisor
email us

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This page was last updated on: June 19, 2023

Shelter Cymru acknowledges the support of Shelter in allowing us to adapt their content. The information contained on this site is updated and maintained by Shelter Cymru and only gives general guidance on the law in Wales. It should not be regarded or relied upon as a complete or authoritative statement of the law.