An individual person or sole trader is personally liable for all of his or her debts. There is no distinction between business creditors or personal debts and in the event of insolvency they will all be lumped together and be entitled to share in the assets and property (both business and personal) of the debtor equally, unless they hold security or are classed a “preferential” creditors such as employees.
There are a number of ways in which personal insolvency can be dealt with, principally Bankruptcy and Individual Voluntary Arrangements. There are other procedures for small cases and there are proposed changes to the law which will bring in a number of new additional ways.
Partners of an insolvent partnership are treated as individuals but the partnership itself is deemed to be a company if it becomes insolvent.
An Individual Voluntary Arrangement (IVA) is in many cases preferable to Bankruptcy as it is beneficial both to creditors because of the lower costs, and to a debtor because it avoids the permanent black mark of Bankruptcy.
In other instances a Debt Management plan is another viable option.
Click on the headings on the left of the page to see notes and explanations of all of these terms.
Personal Insolvency – A Practical Guide
Two of our partners, Richard Floyd and Simon Knight, have co-authored a technical reference book called “Personal Insolvency – A Practical Guide” published by Sweet & Maxwell.
Individual Insolvency Register
A public record is kept of on the Individual Insolvency Register of everyone who is subject to Bankruptcy, an IVA or a Debt Relief Order. Their names will remain on the register until 3 month after they have been discharged.