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

UPDATE: the bankruptcy application process for people living in England, Wales and Northern Ireland changed in 2016. Visit our bankruptcy changes page for more information

This page contains information about debt solutions available in England, Wales and Northern Ireland. Debt advice in Scotland involves similar but different solutions. Before considering an IVA as a debt solution, please make sure you fully understand the risks involved. More information can be found on our website

iva or bankruptcy

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 or bankruptcy – a tale of two types of insolvency

The first thing we can say about bankruptcy is that if you qualify for it, it could be the quickest way for you to deal with your debts.

Most bankrupts are discharged after 12 months. You may need to pay into the bankruptcy for a couple more 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 daunting 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?

Pros of Bankruptcy

  • It’s often the quickest way to get debt free
  • It costs £655 for people living in England or Wales or £645 for Northern Ireland residents
  • 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

Cons of Bankruptcy

  • 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
  • Your credit history will be affected for 6 years
  • Secured debts aren’t included in bankruptcy

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.

Pros of an IVA

  • You sign up to a financial plan for five to six years and at the end of it you’ll be debt free
  • You can keep some assets such as property and vehicles
  • 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. It’s possible to have payment breaks and other changes to the proposal once its been approved by creditors
  • StepChange Debt Charity has an award-winning IVA company

Cons of an IVA

  • As a form of insolvency an IVA is still publicly recorded on the Insolvency Register
  • You may need to release some equity from your home six months before the end of your IVA. 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
  • Your spending will be restricted while the IVA is active
  • Your credit history will be affected for 6 years
  • Should the IVA fail, creditors may request that the Supervisor petitions for your bankruptcy (but this is unlikely)
  • To be approved, more than 75% of your creditors who vote must agree to your proposal. The percentage is calculated using the amount owed, so bigger creditors have more influence
  • Secured debts aren’t included in an IVA. Only the unsecured debts included in the IVA will be written off upon completion. Any additional unsecured debts will still be outstanding.

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. You’ll feel much better prepared for the process if you’ve spoken to an advisor beforehand.

There are a range of debt solutions available, including IVAs and bankrutpcy. The important thing is to find the right solution for you. The first step 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.

Posted by in Living with debt