As a very rough guide, all three type of insolvency – Debt Relief Orders (DROs), IVAs and bankruptcy – wipe out most types of unsecured debt including:
- credit cards, catalogues and Klarna-style Buy Now Pay Later;
- unsecured loans;
- guarantor loans can often be included but you need to take advice;
- overdrafts;
- arrears on council tax, utilities and other household bills;
- benefit and tax credit overpayments;
- income tax, VAT and National Insurance;
- previously secured debts eg car finance after repossession or termination, mortgage arrears after a sale of the property.
For rent arrears and secured debts, you should take advice:
- mortgages and secured loans are included in bankruptcy, but if you want to stay in the property the security remains and you have to keep paying it;
- mortgages and secured loans can be included in an IVA but it is very rare;
- for car finance in an IVA you need to discuss whether your IVA will be approved and what will happen when the IVA ends;
- for car finance in a DRO, the car is not an asset at the start of the DRO as you do not own it but you need advice on whether the car will be treated as an allowable expense
- car finance in bankruptcy is similar to in a DRO – take advice.
None of the three types of insolvency will cover:
- student loans;
- magistrates court fines eg driving offences. This does not include fixed penalty charges such as parking fines – these can be included;
- debts owed as the result of a Personal Injury claim against you;
- child maintenance arrears
- debts incurred through fraud.
Take advice if you are uncertain.
In particular, if you have a debt that will not be included in the form of insolvency you are considering, you usually need to have made a payment arrangement in advance of an IVA, so that you are sure you will be able to afford the IVA payments.