Insolvency Made Clear: A Guide for Debtors

Insolvency Law Made Clear – A Guide For Debtors
Many people cannot afford legal advice or need to be careful with how they use
the resources they have for legal advice. Chapter 17 offers guidance to those who
can only afford limited legal advice, or who cannot afford any. The book should
also be useful for volunteers in legal advice centres, or for professional lawyers
who do not often encounter insolvency problems. It exclusively covers the law
of England and Wales.
The book cannot cover every situation. It tries to cover the most common problems
which individuals face. There is plenty of material available to help debtors.
This book is different because it focuses on court processes. It describes what
happens at a late stage of a debtor’s financial problems, if these problems are not
resolved sooner. Most other available books advise on financial management
before the problem proceeds to court. Resolving debt issues before they come
to court will lead to a better outcome for the individual, but often this advice
comes too late. It may not be enough for someone who has received a statutory
demand to think about financial management: they also have to understand and
participate in the bankruptcy process or they could be made bankrupt within
two or three months.
Fortunately, creditors typically prefer to avoid going to court (also known as
‘litigation’). Litigation is expensive. It commonly happens that the people litigating
(‘the parties’) spend more on lawyers than their original dispute was
worth. However, some creditors are reluctant to compromise. Chapter 18 discusses
strategies for negotiating with those creditors who are prepared to settle
a case without making a debtor bankrupt. One of the key messages of this book
is that debtors should use the fact that the English legal system is expensive and
slow to their advantage to achieve a realistic settlement. It may also be useful
for debtors to know what is likely to happen if they cannot resolve their debt
problems any other way.
Insolvency is common for both individuals and companies. Statistics from the
Insolvency Service show that approximately 122,000 people went insolvent in
2019, which is 1 out of every 400 adults in England and Wales. Of these, about
78,000 signed an ‘individual voluntary arrangement’ (see Chapter 1), 27,000
had a ‘debt relief order’ (again, see Chapter 1) and 17,000 went bankrupt. These
three processes all have similarities. More is known about individuals who voluntarily
go bankrupt than those who are forced to do so. The most common
causes of bankruptcy for people who voluntarily go bankrupt are the debtor
living beyond their means; relationship breakdown; reduction of the bankrupt’s
income or loss of their employment. The typical debtor has approximately
£35,000 of debt.
This book focuses on bankruptcy even if it is the less common outcome. It is
necessary to understand what bankruptcy is (and is not) to understand how to
approach the other processes.
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