Your Guide to Resolving Debts Through Insolvency: Bankruptcy, IVA and DRO Explained
Published 24th of October 2013·Updated 22 April 2026
Reviewed by: Reviewed for accuracy April 2026
You are legally insolvent when your debts exceed the total value of everything you own and earn, and you have no realistic way to repay them. There are three formal insolvency routes available in England and Wales: bankruptcy, an Individual Voluntary Arrangement (IVA), or a Debt Relief Order (DRO). Each has different eligibility criteria, costs, and consequences. None should be entered into without taking free professional debt advice first.
Short Summary
Insolvency is not the same as ignoring your debts. It is a formal legal process that either writes off debts you genuinely cannot pay or restructures them into affordable payments over a fixed period.
Bankruptcy is best suited to people with significant debt and no assets or income to repay it. An IVA is better for those with a regular income who can make monthly payments. A Debt Relief Order suits people with low income, few assets, and debts under £30,000.
All three options will appear on your credit file for six years and will be listed on the public Insolvency Register while they are active. This affects your ability to get credit, rent a home, and in some cases hold certain jobs.
Free advice before choosing any option is available from StepChange (0800 138 1111), Citizens Advice, or the National Debtline (0808 808 4000). Insolvency practitioners who set up IVAs are paid from your repayments, so take independent advice before committing.
What is insolvency?
Insolvency means you owe more than you can pay. You cannot formally "declare insolvency" as a single act; you must apply for a specific insolvency process. The three routes available in England, Wales, and Northern Ireland are bankruptcy, an IVA, and a DRO. Scotland has its own equivalents: Sequestration (bankruptcy), a Trust Deed, and a LILA (Low Income, Low Assets) order.
What is bankruptcy?
Bankruptcy is a legal process in which most of your debts are written off. A trustee (an Official Receiver appointed by the court) takes control of your assets and distributes what they can to your creditors. After 12 months, you are automatically discharged from bankruptcy and the remaining included debts are gone.
Not all debts are cleared by bankruptcy. Student loans, court fines, child support arrears, and some HMRC debts remain payable even after discharge.
Bankruptcy costs £680 to apply in England and Wales (as of 2026). You can apply online via the Government's insolvency portal at gov.uk.
What is an Individual Voluntary Arrangement (IVA)?
An IVA is a legally binding agreement between you and your creditors, arranged by a licensed insolvency practitioner. You make a single affordable monthly payment for a fixed period, typically five or six years. At the end of the arrangement, any remaining included debt is written off.
An IVA requires at least 75 per cent (by debt value) of creditors to agree to the proposal. If they do, all creditors including those who voted against are bound by the arrangement.
| Feature | Bankruptcy | IVA | DRO |
|---|---|---|---|
| Debt written off after | 12 months | 5 to 6 years | 12 months |
| Monthly payments required | Possibly (income payments order) | Yes | No |
| Asset restrictions | Your assets may be sold | Equity release may be required | Few assets allowed |
| Application cost | £680 | Fees taken from payments | £90 |
| Maximum debt level | No limit | No limit | £30,000 |
| Suitable income | Low or none | Regular income needed | Low income |
| Credit file impact | 6 years | 6 years | 6 years |
What is a Debt Relief Order (DRO)?
A DRO is a lower-cost alternative to bankruptcy for people with relatively small debts, little income, and few assets. To qualify in England and Wales, you must owe no more than £30,000, have less than £75 per month in surplus income after essential expenses, and own assets worth no more than £2,000 (excluding a vehicle worth up to £2,000).
A DRO lasts 12 months. During that period, creditors cannot take any action to recover the included debts. If your financial situation has not improved by the end of the 12 months, the debts are written off.
The application fee is £90, payable to the Insolvency Service. Applications are made through an authorised debt adviser, not directly. StepChange and Citizens Advice can help you apply.
Should I choose insolvency to resolve my debts?
Insolvency is a last resort, not a first step. Before applying for any formal insolvency process, you should explore whether a debt management plan (DMP) or a negotiated repayment arrangement with your creditors would work. These options do not carry the same legal consequences.
Insolvency may be appropriate if:
- Your debts are so large that no realistic repayment plan would clear them in a reasonable timeframe
- Your creditors are refusing to negotiate
- You are receiving enforcement action such as bailiff visits or a statutory demand for a debt over £5,000
If you are unsure which option fits your situation, a free debt adviser at StepChange or Citizens Advice will assess your full financial picture without charging you anything.
How do I apply for insolvency?
- Bankruptcy: Apply online at gov.uk/apply-for-bankruptcy. You pay the £680 fee and submit details of your debts, income, and assets. An adjudicator from the Insolvency Service makes the decision.
- IVA: Contact a licensed insolvency practitioner. They will assess your finances and propose the arrangement to your creditors. Their fees are paid from your monthly payments.
- DRO: Apply through an authorised intermediary such as StepChange or Citizens Advice. The £90 fee is payable to the Insolvency Service.
For all three options, you will need to disclose full details of your debts, income, assets, and spending. Providing false information in an insolvency application is a criminal offence.
What restrictions apply during insolvency?
During bankruptcy or a DRO, you cannot borrow more than £500 without telling the lender about your situation. You cannot act as a company director, and certain professional licences may be suspended. These restrictions lift when you are discharged.
During an IVA, you must follow the terms set by your insolvency practitioner, which typically include restrictions on taking on new credit and requirements to declare any significant change in your financial situation.
FAQ
Will insolvency clear all of my debts?
No. Certain debts are excluded from all insolvency processes, including student loans, court fines, child support arrears, and TV licence fines. You remain liable for these regardless of which insolvency route you take.
How long will insolvency affect my credit file?
All three formal insolvency options stay on your credit file for six years from the date the arrangement started. During that time, most mainstream lenders will decline credit applications. After six years, the entry is removed automatically.
Can I keep my house if I go bankrupt?
Not necessarily. If you own your home and it has equity, the Official Receiver can apply to sell it to pay creditors. If your partner or children live in the property, a court may delay the sale, but it is rarely stopped altogether. An IVA may allow you to keep your home, though you may be required to release equity if there is sufficient value in the property.
Can my employer find out about my insolvency?
The Insolvency Register is publicly searchable, so in principle anyone can look up your status. Most employers do not routinely search the register. However, if you work in financial services, law, accountancy, or another regulated profession, insolvency may breach the terms of your professional registration or employment contract.
Is a Debt Relief Order the same as bankruptcy?
No, though they are similar in effect. A DRO is designed for people with smaller debts and fewer assets than bankruptcy typically applies to. The application process is different, the cost is lower (£90 versus £680), and a DRO does not involve a trustee taking control of your assets. Both last 12 months and both clear included debts at the end.
What is the difference between an IVA in England and a Trust Deed in Scotland?
A Trust Deed is the Scottish equivalent of an IVA. It is a legally binding arrangement with your creditors to repay a portion of your debts over a fixed period, typically three years rather than the five or six years common in England and Wales. If you live in Scotland, contact the Accountant in Bankruptcy (aib.gov.uk) for guidance on which debt solution applies to your situation.