IVA versus bankruptcy – which form of insolvency is best for me?

posted by in Bankruptcy, Debt, IVA

Working it all out

Working it all out

With some financial situations you may have more than one option for resolving your debt. We’ve all heard of personal bankruptcy and many of us have now heard of an individual voluntary arrangement or IVA.

They’re both forms of insolvency and in some situations it can be a choice between these two debt solutions. But, what you really want to know is this: which is best for you?

Well, both solutions will get you debt free, we regularly recommend both solutions and support those clients through their IVA or bankruptcy. It really comes down to your individual circumstances and what the best advice is.

IVA and bankruptcy – a tale of two types of insolvency

The first thing we can say about bankruptcy is that if you qualify, it’s usually the quickest way to get debt free.

Most bankrupts are discharged after 12 months. You may need to pay into the bankruptcy for a further couple of years but in the majority of cases the whole process is usually over within three years.

On the other hand IVAs usually last between five and six years. This can be a long time to live on a budget, but the process of setting up and entering an IVA can be a lot less fraught than bankruptcy. Additionally, once you enter an IVA you’ll have been totally briefed on what the solution entails.

So what are the pros and cons of each?

Bankruptcy pros

  • It’s usually the quickest way to get debt free
  • It only costs £700 and this can be reduced in certain circumstances
  • It’s possible to be discharged from bankruptcy after 12 months
  • If your property is in negative equity you may be able to retain it
  • Bankruptcy advice is free if you get it from us
  • You don’t need creditor approval to go bankrupt

Bankruptcy cons

  • It’s recorded publicly on the Insolvency Register and in the London Gazette (but usually not in your local paper)
  • Your bank account will be frozen for a period of time
  • You hand control of your finances over to an Official Receiver
  • You could lose your assets, such as your house
  • Your job might be affected

There are a lot of myths surrounding bankruptcy and it can seem scary to some people, but in many cases it’s the quickest and cheapest option.

IVA pros

  • You sign up to a financial plan for five to six years and know at the end of it you’ll be debt free
  • You can keep some assets such as property and vehicles
  • You do pay IVA fees but none of these should be paid up front and instead come from amounts paid into the IVA once it’s approved
  • As you’re working with a licenced Insolvency Practitioner you retain some level of control over the initial process
  • IVAs aren’t as rigid as most people think, and it’s possible to have payment breaks and other changes to the proposal once it has been approved by creditors (some of these changes may need to be approved by creditors)
  • StepChange Debt Charity has an award-winning IVA company

IVA cons

  • As a form of insolvency an IVA is still publically recorded on the Insolvency Register
  • You may need to release some equity from your home six months before the end of your IVA, and if this isn’t possible the term of the IVA may be extended
  • IVAs can last up to six years, three years longer than most bankruptcies

I still can’t make up my mind!

If you’re looking for a debt solution it’s vital that you take advice from experts – in the case of bankruptcy most judges won’t even grant bankruptcy unless you’ve taken good advice from a recognised source.

Your first port of call is to put together a personal action plan online using our free debt advice tool Debt Remedy.

Whatever solution is best for you, we’ll provide the best debt help available.

Matthew worked as an IVA drafter prior to working in social media. In a former life he wrote scripts for Eastenders, Emmerdale and Hollyoaks. He has 3 chickens, 2 dogs and a rabbit.

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