Insolvency Made Clear: A Guide for Debtors

Chapter 1
Alternatives to
bankruptcy
Some debtors may wish to go bankrupt for the advantages it brings. Others have
an alternative to bankruptcy, for example if the creditors prefer to settle the
claim out of court or if they qualify for a niche alternative. Creditors may prefer
to settle the bankruptcy claim out of court, frequently because they prefer a
smaller sum now to an uncertain sum in the future. Nothing stops a debtor
informally agreeing with a creditor to pay less debt, or to have more time to
pay. However, the Insolvency Act creates certain structures which can be helpful
to give a debtor an alternative to bankruptcy. This chapter discusses these
alternatives.
1.1 Individual Voluntary Arrangements
An important alternative to bankruptcy is an ‘Individual Voluntary Arrangement’
(IVA). An IVA is a type of contract between the debtor and their creditors. If
an IVA is passed it binds all known creditors who were entitled to vote in the
arrangement, or would have been if they had notice of it. This includes creditors
who voted against the arrangement.
Box 1:
WHO IS BOUND BY AN IVA?
An IVA binds all creditors, except:
▶ Certain family support orders
▶ Student loans
▶ Magistrates’ fines
▶ Loans which are secured, e.g. mortgages
An IVA will bind ‘contingent’ and future creditors, i.e. those whose debts are
not currently owed but might be. An example of a future creditor is where a
purchaser buys an item and agrees to pay for it in future monthly instalments. A
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