Personal insolvency in England and Wales offers three formal routes and one informal one, and the right choice depends far more on what you own and earn than on how much you owe. A debt relief order is free to apply for — the £90 fee was abolished in April 2024 — and writes off qualifying debts up to £50,000, but only for someone with almost no assets and no more than £75 a month of spare income. Bankruptcy has no debt limit and takes your assets. An individual voluntary arrangement sits between them and is the route most likely to leave a home intact — though that depends on the terms agreed, and most arrangements require the equity to be revisited towards the end of the term.
Debt relief order: the low-asset route
A DRO is designed for people with little to lose and no realistic prospect of paying. The qualifying conditions are strict and all must be met: qualifying debts of less than £50,000, assets worth less than £2,000, no vehicle worth £4,000 or more, and less than £75 a month of surplus income after reasonable living costs. You must have lived or worked in England or Wales within the last three years and must not have had a DRO in the previous six.
Where it applies, the effect is decisive: the order lasts 12 months, during which creditors cannot enforce, and at the end the debts are written off. Applications are made through an approved intermediary rather than directly. The limitation is equally clear — owning a house, or earning enough to make meaningful payments, puts a DRO out of reach entirely.
Individual voluntary arrangement: the one that can save a house
An IVA is a legally binding agreement with creditors, proposed through an insolvency practitioner, to pay what you can afford over a fixed term — typically five or six years — after which the balance is written off. It requires the approval of creditors holding 75% by value of those voting, and once approved it binds all unsecured creditors including any who voted against.
Two features make it the preferred route for people with something to protect. Assets are not automatically realised, so a home with equity can often be retained, usually with a requirement to attempt a remortgage in the final year and to extend the term if that fails. And for company directors, an IVA does not carry the automatic disqualification from acting as a director that bankruptcy does — which for someone whose income depends on running a business is frequently the deciding factor.
The trade-offs are real. Failure to maintain payments can collapse the arrangement and lead to bankruptcy anyway; the term is long; and the fees are paid from the contributions rather than on top of them, which means the creditors receive less than the headline figure suggests.
Bankruptcy
Bankruptcy can be applied for by the individual online, or petitioned for by a creditor owed £5,000 or more. A trustee takes control of the bankrupt's estate, realises the assets — including, subject to the rules protecting family homes for a period, any equity in a property — and distributes the proceeds. Discharge is normally automatic after 12 months, though an income payments arrangement can require contributions from surplus income for up to three years, continuing past discharge.
The consequences beyond the debts are what people underestimate. A bankrupt cannot act as a company director without the court's permission, cannot hold certain regulated or professional positions, and faces restrictions on obtaining credit. The bankruptcy is on a public register. And where conduct has been culpable, a bankruptcy restrictions order or undertaking can extend those restrictions for up to 15 years.
Before any of the three
Formal insolvency is not the first step, and a competent adviser will test the informal options first. A debt management plan — an informal agreement to pay reduced amounts — costs nothing legally and can be varied, but it binds nobody and interest may continue. A breathing space moratorium gives a period of protection from enforcement and interest while advice is taken. And where the pressure comes from one creditor with a disputed debt, the answer may be to dispute it rather than to restructure everything around it.
Two practical points matter in every case. Priority debts come first: mortgage and rent arrears, council tax, and tax debts carry consequences — eviction, enforcement, in some cases criminal — that credit card arrears do not, and a plan that treats all creditors equally is usually the wrong plan. And timing matters: transactions at an undervalue and payments that prefer one creditor over others can be unwound by a trustee, looking back years, so moving assets to family before an insolvency is among the worst decisions available.
Where a business is involved
For a sole trader there is no separation: the business debts are personal debts, and personal insolvency is business insolvency. For a director of a limited company the position is usually distinct — until a personal guarantee is involved, and most bank facilities and many supplier accounts for small companies carry one. The order in which a company's insolvency and the guarantee are dealt with materially affects the personal outcome, and that sequencing is a decision to take with advice before either process starts.
Acumon is not an insolvency practice, but we work alongside licensed practitioners regularly and advise on what sits around a personal insolvency: the tax position, the returns that still have to be filed, and how the business side is handled. Our private client tax and business support teams take those on, and we will say plainly when the right next call is to an insolvency practitioner rather than to us. The decision that costs the most is delay.