A recession occurs when a country’s GDP is down for two full quarters(the GDP’s growth must be negative for a full 6 months period for a country to be in recession). The current international recession hit the UK during the second quarter of 2008. During the last quarter of that same year, the UK’s GDP dropped a further 3%. A consequence of this was the rise in personal insolvency that reached 27,702 during the 4th quarter of 2008. This rise in personal debt levels also generated a rise in the number of people looking for debt management. The level of Individual Voluntary Arrangements (IVA) also rose considerably, reaching 10,041 during that same periods.

However, as the UK’s GD’s growth dropped to -6% during the 2nd quarter of 2009, an all time low since the end of World War II, the number of IVAs that were taken out rose to 12,623 during that same quarter.

An IVA is a legal arrangement between the debtor and their creditors whereby the debtor is free from unsecured within 5 years. During that period, the debtor will pay a sum that is based on their income and expenditure intothe IVA. However, the debtor must comply with strict criterias in order to apply for an IVA.

In order to apply for an IVA, the debtor must satisfy the following criterias:

The debtor must owe 15,000 of unsecured debts to at least three creditors The debtor or their partner must have a source of income that originates from employment While a homeowner’s mortgage will be taken into account as part of the expenditures, the property may not be counted as being part of the debtor’s assets, or the debtor will receive income-based contributions for a longer period instead of the debtor’s equitable interest in the property. In the event of a change in the debtor’s personal circumstances, the Insolvency Practitioner will act on behalf of the debtor and submit a new offer for the creditors to consider.

If the debtor cannot keep up with the Individual Voluntary Arrangement payements, then they a Bankruptcy Order may become reality. This occurs when the debtor is unable to pay anything or very little towards their debts. A trustee who may also oversee the debtor’s finances then controls the debtor’s assets.

Visit the RSM Tenon Debt Solutions website for more informations about ways to get out of debt, including Individual Voluntary Arrangement