Personal Debt In The UK

Right up until the banking crisis in 2008 borrowing money in the United Kingdom was generally very easy and the array of credit products wide and varied. For those with good credit the first port of call would usually be their bank who could provide an overdraft facility, personal loan or credit card. It wouldn’t be unusual for someone having maxed out all their bank borrowings to approach a second bank for another current account, overdraft, credit card and loan and exhaust their credit facility there as well. By this time, they’ve likely realised they are getting in over their heads with debts. At that point, the sensible thing would be seek debt advice and draw up a plan to repay those borrowings before they got any worse. But sadly for very many people they would go to another lender for a debt consolidation loan to pay off all the existing borrowings. Now, in some instances, that may work out okay but many people would pay off the borrowings with the new loan and then start using the credit again that they’d just paid off.

That will be a familiar story to some reading this. It is typical of someone finding themselves in a debt spiral that they struggle to get out of.

So what should someone do that finds themselves in over their heads with debts they can’t repay? Seek professional advice from a debt advisor or insolvency specialist about the options available. We know a great insolvency advisor in Liverpool. They work all over England and Wales and are very experienced.

Debt Management

The debt management industry has grown quickly in the UK which is not surprising. It works best for people with a small number of creditors and not too much debt. We are aware though of people going into a debt management plan with  a large number of creditors and fairly substantial unsecured debt. The advantage of debt management is that a plan is easy to set up through one of the various debt management companies and with no upfront fees payable usually. There are fee charging companies and other debt management firms that do not charge a fee.

Debt Relief Order

DROs haven’t been around for long but as long as you have few or no assets and debts under £20,000 they can be a great solution. A DRO lasts only a year and that’s probably the biggest advantage of them.

Individual Voluntary Arrangement

An IVA works a bit like debt management- you pay a monthly payment from income but for a fixed period which is usually 5 years. It is more formal than debt management and you may not have to pay all your creditors back in full- the balance owed is written off at the end of the IVA.


Bankruptcy is always the most serious option for individuals with debts, particularly if you have assets. No-one should file for bankruptcy without taking professional advice first. Still, if all the above options have been exhausted then bankruptcy may be the only way. Any assets (things you own) will be claimed by the Official Receiver or Trustee. There are some exempt assets like household furniture, tools of trade and low value car. Also filing for bankruptcy is expensive. A new system is about to be rolled out in England and Wales and the fees total £655.


Sometimes An Insolvency Practitioner Is Necessary

Worldwide, insolvency work is carried out by different types of professionals. In the US for example, it is usually lawyers that deal with bankruptcy and insolvency cases. In fact, in many countries of the world, it is lawyers that take care of bankrupt and insolvent people and companies.

Maybe uniquely in some ways, insolvency as a process is a mix of legal and financial disciplines. Usually closely controlled by the due process of law, it is the financial aspects of the person or the company that needs the skilled attention of the professional. hence, in some ways, lawyer dealing with an insolvency case is something of a quasi-accountant and an accountant dealing with an insolvency has to act as a quasi-lawyer.

In America, the terms bankruptcy and insolvency generally mean the same thing and apply to companies and people. In the United Kingdom the term bankruptcy is only used in relation to insolvent people, not companies. For companies in the UK the word insolvency is more commonly used and there are various types of insolvency that apply to companies. Funnily enough, Scotland has very different procedures to England and Wales but here we are mainly talking about how insolvency operates in England and Wales.

We were speaking with Insolvency Practitioners Liverpool about the procedures and they explained that people dealing with insolvency cases must be licensed before they can deal with a formal insolvency situation and hence they are known as licensed insolvency practitioners. Generally they tend to be accountants in England and Wales but there are some solicitors who specialise in insolvency as well and sit the exams to qualify as licensed insolvency practitioners too. The Liverpool insolvency experts we spoke with are specialists who have only ever worked within the world of insolvency but consider themselves to be more accountants than solicitors.

Often times an insolvent Liverpool business will be recommended to a local insolvency specialist for advice and to see what the right way out of their predicament might be. If the business can’t pay its bills and trade is generally poor, and with few assets, we gather that liquidation might be necessary. For small companies a creditors voluntary liquidation is a popular way to bring the life of an insolvent company to an end. For some businesses though, there might be other avenues to explore like an easier repayment schedule where the company can carry on trading and pay old bills from future trading profits. This process is called a Company Voluntary Arrangement. It seems like a useful way to resolve debt issues and yet keep the company afloat. If you are reading this in the the UK we suggest you take a look at a UK specific insolvency website and find a licensed insolvency practitioner near to wherever you are. They will often speak with you on the phone or let you have a first meeting with no fee payable. That way you can find out more about what your options are without any obligation or financial commitment.