Personal Insolvency

To be insolvent is not the same as being bankrupt. With careful financial planning and restructuring by financial advisors and legal experts it is possible to get out of insolvency and return to business as usual. Simply speaking, insolvency is when your liabilities exceed your assets so you cannot pay your bills. 

What happens when you become insolvent?

When you become insolvent you should make a claim of insolvency to the Internal Revenue Service (IRS). You have to fill out the forms 1099-C and 982 and send it to the IRS where it will be reviewed and determined. IRS will determine the amount of discharged indebtedness (forgiven debt) that can be excluded from gross income.

In brief, this is what happens when you submit a insolvency claim to IRS: 

  • The IRS will review the form you submitted and will either deny, question or accept your claim for insolvency. 
  • If they deny your claim, you won’t be able to exclude your forgiven debt from taxes.
  • If they question your claim, you may have to prove your calculations or supply supplementary information to convince the IRS that your figures are accurate. Consider showing your working outs on an insolvency worksheet. 
  • If your claim is accepted, then you do not have to pay tax on your cancelled debt

If your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt to the IRS on your tax return on the same year the cancellation occured.

Once the IRS accepts your claim for insolvency there are different options available going forward. The most common options are IVA or bankruptcy.

Individual Voluntary Arrangement

An IVA is an alternative to bankruptcy and allows you to take control of your debt by proposing a settlement to your creditors which, if agreed, is legally binding. You still have to pay back your debt but it will be reduced and paid back over a period of time.

An IVA must be set up by a qualified practitioner such as a solicitor or accountant. That person will manage your debts throughout your IVA. The qualified practitioner will work with you to create a repayment plan, this can be a lump sum, instalment payments or a mixture of both.

Bankruptcy 

If you owe someone £5000 or more and you have no way of paying it back either you or the person the money is owed to can apply for your bankruptcy. Bankruptcy is a chance to make a fresh start.

Once bankruptcy is declared all your assets will be controlled by a trustee in bankruptcy. They will supervise the sale of your assets that aren’t exempt for example everyday household items, tools you need to do your job, a car if you need it to get to work. The money raised will go towards paying back your creditors. Bankruptcy will end after one year, unless the trustee in bankruptcy is granted an extension by the courts or it will end once all the debt is paid back, whichever is achieved first.

Why Instruct OneLaw Chambers for your Civil Litigation Case?

At OneLaw Chambers, our civil litigation solicitors and barristers regularly assist with many contentious civil litigation cases. We have assisted and represented many clients from all over the world achieving successful outcomes for them.

OneLaw Chambers has defended the interests of successful individuals, businesses and brands for many years, pursuing matters swiftly and robustly where necessary. With a dedicated team of Civil Litigation Solicitors and Barristers, OneLaw has an established dispute resolution practice acting in complex multi-jurisdictional disputes and is well known in the art, sport, fashion and luxury assets sectors. Specialisms include international arbitration, public international law, tax controversy, media and reputation management, employment and regulatory, professional negligence, board and shareholder disputes, insolvency and fraud.

Our Civil Litigation Solicitors and Barristers fiercely and tenaciously represent you in putting forward the strongest possible case, ensuring that you are always satisfied with the manner in which we represent you and that a successful outcome is achieved in your case without significant cost and expense to you.

We are committed to ensuring that our Civil Litigation Solicitors and Barristers prepare every civil litigation case with utmost quality and skill so that successful outcome is achieved every time. Our Civil Litigation Solicitors and Barristers operate in a friendly and cooperative manner to provide our clients with the best client care and service during the entire civil litigation process.


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