Types of personal insolvency — bankruptcy, IVA, and Debt Relief Order
There are three main routes to personal insolvency for residential tenants: bankruptcy (IA 1986 — all assets vest in the Official Receiver/Trustee in Bankruptcy; 12-month discharge); Individual Voluntary Arrangement (IVA — supervised repayment plan approved by 75%+ creditors in value; typically 5-6 years); and Debt Relief Order (DRO — lighter route for debts under £30,000, assets under £2,000, disposable income under £75/month; 12-month moratorium). In all three, pre-insolvency rent arrears become unsecured provable debts.
The automatic stay on proceedings — what landlords can and cannot do after a bankruptcy order
IA 1986 s.285 imposes an automatic stay on legal proceedings (money claims) against the bankrupt. However, possession proceedings are expressly preserved by s.285(3)(b) — the landlord can issue and continue possession proceedings against a bankrupt tenant. The landlord should also register as an unsecured creditor using proof of debt form 2.25B.
The tenancy in insolvency — disclaimer, vesting, and the trustee's options
On a Bankruptcy Order, the tenancy vests in the Trustee in Bankruptcy. The trustee can disclaim the tenancy as onerous property under IA 1986 s.315, ending the tenancy and all continuing obligations. Where disclaimer occurs, the landlord can prove for loss arising. The landlord should write to the Official Receiver requesting confirmation of the trustee's intentions regarding the tenancy.
Guarantor liability — surviving the tenant's insolvency
A guarantor's obligation is a separate contract from the tenancy. The tenant's insolvency does not discharge the guarantor — the landlord can pursue the guarantor immediately. However, where the trustee disclaims the tenancy, guarantor liability under the guarantee may also end depending on wording. If the guarantor pays, they are subrogated to the landlord's rights in the bankruptcy.