What is insolvency?

What does insolvency mean?

To put it simply, either a company or individual can be classed as insolvent due to a couple of reasons. For example, they are unable to keep up with their debt payments, and/or the value of their assets such as their home or car is still less than their outstanding debt. 

As you may expect, the processes of dealing with insolvency differs between businesses and individuals. Below we provide a brief overview of both personal and company insolvency. 

Dealing with personal insolvency

If you’re struggling with your personal finances and are finding it hard to keep up with your debt payments, there may be solutions available. Whilst bankruptcy may be the most commonly discussed solution in relation to insolvency, bankruptcy isn’t always right for everyone and their unique situation. 

Be sure to read our guide on the different types of debt solutions to find out more about the solutions available, as well as eligibility requirements and where to seek financial advice for further help and guidance. 

Dealing with company insolvency

There is also company insolvency, and this usually means more than one person involved and affected. There are a number of reasons why businesses might end up in this situation including a loss of business contract or a significant loss in customers. 
 
Please note, throughout the rest of this piece, we’ll only be discussing personal insolvency as this is most relevant to Lowell customers. 

Insolvency solutions in the UK

There are a number of different insolvency solutions in the UK, all of which work slightly differently. However, they all exist with the purpose of helping those who are struggling and unable to pay their debts. 
 
It’s worth noting that bankruptcies, IVAs, and DROs are only open to those in England, Wales, and Northern Ireland. 

Scotland has its own insolvency solutions separate from the rest of the UK which we’ll go through in the next section. 

Bankruptcy

• A legal process in which you’ll be declared bankrupt and any eligible debts will be written off once your bankruptcy period ends 
• Other areas of your life may be impacted such as your employment, needing to sell valuable assets, and personal bank accounts which may need to be closed 
• If you’re eligible, you’ll need to pay £680 in England and Wales or £683 in Northern Ireland to be declared bankrupt 

You can read our bankruptcy guide for more information on what it is, how bankruptcy can affect you, and what the legal process involves. 

Is insolvency the same as bankruptcy?

No. Insolvency refers to the financial state of being unable to pay debts and that’s it. 

Bankruptcy, however, is a legal process that takes place once a person has been declared insolvent. This is done through an Official Receiver, and usually only as a last resort. 

It may sound complicated but it’s important to understand that the two are separate and you can technically be insolvent without being bankrupt. 

Individual Voluntary Arrangement (IVA)

• A formal agreement between you and those that you owe money to 
• Usually only includes unsecured debts 
• Creditors have to stop charging interest on your debts 
• You’ll continue to make monthly payments over a certain period of time 
• Payments are based on what is affordable to you 

If you’re interested in looking into this further, we’ve got a more in-depth guide on individual voluntary arrangements that you can check out. 

Debt Relief Order (DRO)

• Usually lasts for 12 months 
• Once set up, any debts and interest included in the agreement will be frozen meaning you won’t have to make any payments during this time 
• After a DRO ends, if your circumstances haven’t changed, debts included in the DRO will be written off 

For more detailed information, we’ve got an entire guide on debt relief orders which goes over what it is, how they work, eligibility requirements, and more. 

Insolvency solutions in Scotland

As we mentioned, Scotland has its own separate insolvency solutions. We’ll provide a brief overview of what these are and how they work below. 

For further information on the below, National Debtline has an in-depth fact sheet going through how each of them work. 

Minimal Asset Process bankruptcy (MAP)

• For those who are struggling with debt who have few assets or no disposable income 
• Cheaper and simpler than full administration bankruptcy or ‘sequestration’ which we’ll touch on below 
• Usually ends after six months after which any relevant debts will be written off 
• Most unsecured and priority debts can be included 

Full Administration Bankruptcy

• Scottish equivalent of bankruptcy 
• Can also be referred to as ‘sequestration’ 
• Costs £150 unless you’re receiving certain benefits 
• May be able to apply for full administration bankruptcy if you don’t qualify for MAP 
• To apply, you’ll either need a certificate of sequestration issued by an approved debt advisor or be in a state of ‘apparent insolvency’ 

What is apparent insolvency?

Apparent insolvency means that you’re unable to keep up with your debt payments. However, there are only certain circumstances in which you can be ‘apparently insolvent’ 

This includes: 

• You’ve received a ‘charge for payment’ and weren’t able to pay the debt within the 14-day time limit 
• You've been served with a ‘statutory demand’ from a creditor but were still unable to pay the debt within the required 21 days 

Protected Trust Deed

• A formal agreement between you and the people you owe money to, similar to an IVA 
• Secured debts cannot be included in a trust deed 
• Once complete, the rest of the debt included in the agreement will be written off 
• Generally lasts four years 

What is an Insolvency Practitioner (IP)?

An Insolvency Practitioner, often shortened to just IP, is a qualified professional who is appointed by the court to act on behalf of someone facing insolvency. The IP acts independently in the best interest of both the debtor (the individual who owes the money) and creditors. 

Their overall role can be split into three basic parts: 

• Advisor – They help those struggling with their finances to figure out what possible options are open to them and advise them on the best next steps. 
• Nominee – If it turns out that an insolvent solution is most suitable, the IP will be responsible for starting this process, including completing and supporting the completion of any necessary applications. 
• Supervisor – Once everything has been set up, the IP supervises and manages the arrangement by taking payments and reporting back to creditors. In short, they oversee the entire process. 

Where to seek advice on insolvency

We know that from speaking to our customers that struggling with debt can bring up all sorts of emotions. Whatever you’re feeling, we want to make it clear that you never have to go through it alone. 

There are lots of free and independent organisations that you can speak with who will be able to offer expert financial advice and provide support on your next steps based on your individual personal situation such as organisations like National Debtline and StepChange. 

Seeking expert advice allows you to better understand the possible insolvency solutions and whether they’re the best option for your personal situation. 

Can Lowell help me with insolvency options?

At Lowell, we know that overcoming your debt requires support. That’s why we’ve got steps in place to help our customers and support you in your journey to becoming debt-free with Lowell. 

One of our main goals is to focus on customer wellbeing, and whilst we can’t offer advice ourselves, we want to make sure you have someone to turn to who can help. If you’re a Lowell customer and not sure where to seek advice on insolvency, please contact us so that we can help put you in touch with the right people for debt support. 

Alternatively, if you’re struggling to keep up with payments on your Lowell debt, our dedicated team are there to listen to you and understand your individual circumstances so that a suitable solution can be put in place. 

In certain cases, we might even be able to offer you a hold on your account whilst you try and sort things out or to see free money advice. 

If you’d like to find out more about working with Lowell or improving your financial education, our Debt Guidance hub includes all sorts of debt-related guides.