Personal Debt Solutions — From Informal to Formal
Frequently Asked Questions
Will creditors agree to a full and final settlement at a discount?
Yes — many unsecured creditors (credit card providers, loan companies, debt purchasers) will accept a lump sum settlement at a discount to the full balance where the debtor has limited assets and limited income, and the alternative is formal insolvency yielding little or nothing. Creditors typically accept 25–50p in the pound for long-standing debts where the debtor is genuinely insolvent, though the precise figure depends on the creditor, the age of the debt, whether it has been sold, and the debtor's overall position. A solicitor negotiates without-prejudice settlements with creditors and obtains written confirmation of the settlement and discharge of the balance before any payment is made.
Can creditors make me bankrupt for debts of just a few thousand pounds?
Yes — a creditor can present a bankruptcy petition where the debt is at least £5,000 (threshold raised from £750 by the Insolvency Act 1986 (Amendment) Order 2015, temporarily raised to £10,000 during COVID — the £5,000 threshold was reinstated in October 2021). The petition must be preceded by a statutory demand or an unsatisfied court judgment. However, a solicitor can often negotiate with a petitioning creditor before the petition is heard, or apply to set aside the underlying statutory demand if the debt is genuinely disputed.
Does bankruptcy affect my partner if the house is jointly owned?
Only the bankrupt's share of equity in the property vests in the trustee in bankruptcy — not the non-bankrupt partner's share. The trustee can apply to court to force a sale of the whole property, but must allow at least 12 months where a spouse, civil partner, or children reside there. The non-bankrupt partner has a right to buy out the trustee's interest in the bankrupt's share, preventing a forced sale. A solicitor advises jointly-owning partners on their rights and options at the outset of any bankruptcy proceedings.
Which debts survive bankruptcy and cannot be discharged?
Most unsecured debts are discharged on bankruptcy. Debts that survive discharge include: student loans; debts arising from fraud or fraudulent breach of trust (s.281(3) Insolvency Act 1986); magistrates' court fines and confiscation orders; child support and maintenance arrears; and debts from personal injury claims where the court has ordered they survive. HMRC debts for tax, VAT, and national insurance are discharged in bankruptcy — unlike student loans, they do not survive.
How long does debt stay on my credit file?
Most adverse credit information (defaults, CCJs, missed payments) is retained on your credit file for 6 years from the date of the event — regardless of whether the debt is subsequently paid, settled, or discharged in bankruptcy. Bankruptcy appears on the Individual Insolvency Register until 3 months after discharge, but the credit file entry remains for 6 years from the bankruptcy order. An IVA appears on the register until 3 months after completion and on the credit file for 6 years from the date the IVA was approved. After 6 years, all adverse credit information should be automatically removed.