Insolvency – is it always the last resort?

Declaring yourself bankrupt is seen as a last resort for many. Eva van der Spek, money advice caseworker at the Law Centre, explains why insolvency, despite the negative stigma, can be the best way to move on and have a fresh start. 

What does insolvency mean?

Insolvency means that you are unable to pay back your debts when they are due. If this happens, there are various options open to you (see below), which will result in some or all of your debt being written off after a specific time period.

Isn’t it better to pay off your debts yourself?

Most people want to work their way out of debt themselves and so are reluctant to go down the insolvency route. This is often because of the huge stigma surrounding being in debt – people think it’s their own fault when they can’t cope financially and the same implies to insolvency. They therefore associate bankruptcy with failure, and there may also be pressure from friends and family not to become bankrupt.

It’s really important to understand that most debt problems are caused by factors beyond a person’s control, such as benefits being too low or an external crisis. Once you realise there is no shame attached, then insolvency is often a sensible option.

So what are the advantages of insolvency?

The main advantage is that insolvency gives you a new start and everybody deserves a new start. If you try and pay off your debts by, say, juggling different credit cards, it could take you years and this on-going stress can have an impact on your mental health. Being in debt doesn’t help your health as worrying about money uses up energy.

Declaring yourself bankrupt or getting a debt relief order will take care of your debts all at once which is a huge relief to most people.

What are the different types of insolvency?

The main three types are:

  • Bankruptcy
  • Debt Relief Order
  • Individual Voluntary Arrangement (IVA)

Each of the above has different rules surrounding, for example, your spare income and savings, and different fees attached.

I’m considering insolvency – how do I know which is the best type for me?

You should always seek professional advice before going down any insolvency route as it’s really important you understand fully the implications for you. Insolvency solutions are legally binding so it’s important you choose the one that’s right for you.

Our debt advisers can explain the options and available and help you make the decision that’s best for you. Our advice is free and independent – we do not receive any commission for our recommendations so you can be assured that we have your best interests at heart.

Whichever you decide, insolvency is a way of taking the pressure off, having your debts written off and, ultimately, being able to start again.

If you are struggling with problem debt, please contact us today at and find out how we can help you.