IVA or bankruptcy: the best solution for your debts

Bankruptcy and individual voluntary arrangements (IVA) are both legally-binding, formal insolvency options between you and your creditors to repay the debts. Whilst they are similar in nature there are many differences between the two. This article will give you an overview of the procedures, outlining relevant IVA advice and bankruptcy advice.


The differences between choosing an IVA or bankruptcy

IVAs were, originally, established as an alternative to bankruptcy. For an individual with assets, an IVA is often considered the most suitable option, offering protection over those assets. Similarly, the arrangement provides the necessary breathing space for those suffering financially and is a less ‘extreme’ option to that of bankruptcy.

Bankruptcy, on the other hand, is a procedure that is dealt with in a much shorter period than an IVA. Generally, individuals are discharged from their bankruptcy order within 12 months. However, your individual assets will, likely, be forfeit during the bankruptcy, and it can offer more severe consequences for your financial and career status.

As mentioned above, this article will outline whether to opt for an IVA or bankruptcy, discussing the advantages and disadvantages of each.

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How will an IVA or bankruptcy order affect my home?

A primary difference between IVA and bankruptcy is the effect on your home. If you own a home during your IVA, you will not be forced to sell. However, you could be asked to remortgage the home six months prior to the end of your IVA. It’s important to note that you will only be asked to do so if it is affordable. If not, an additional 12 months may be added to the IVA procedure. This is something you should be aware of this when seeking initial IVA advice.

Entering bankruptcy, however, will likely, affect your home. If you have equity tied up in your house, it’s highly possible that you will have to sell. If there isn’t any equity, you may be able to keep your home.

What about my car?

Another difference between IVA and bankruptcy relates to your vehicle/s. An IVA lasts much longer than bankruptcy and, therefore, you will be able to keep your car – especially if needed for your job etc. However, the same cannot always be said for a bankruptcy procedure, unless it is of very low value. If you do require your car, you must speak to the trustee immediately to determine the position moving forward.

Could an IVA or bankruptcy affect my job?

Filing for bankruptcy is substantially more likely to affect your career, particularly if you hold the title of company director. A consequence of bankruptcy is that an individual cannot act as a director of a limited company, where there is no such prohibition in an IVA. Similarly, individuals with jobs in finance and accountancy sectors, as well as law and property, will likely be affected. There are likely to at least be limitations on handling of client funds. It’s also very possible that some companies may not hire those who have undergone a bankruptcy procedure, but this is, typically, highlighted in the contract.

Your best option with regards to IVA or bankruptcy advice is to speak to your HR department or check with your professional membership body or trade union.

Why choose an IVA?

There are many differences between the two procedures but an IVA may be more suitable as:

  • The IVA will be completed after a certain period – usually no more than seven years – and you can begin building your credit report afterwards.
  • Creditors cannot make any additional demands for payment during an IVA.
  • Individuals entering individual voluntary arrangements are afforded more protection over their assets, such as their home, and may not be forced to sell to repay creditors.
  • An IVA offers fewer consequences for your career than filing for bankruptcy.
  • More protection if you own your own business. 

Disadvantages of an IVA

  • An IVA does last longer than a bankruptcy order, which generally runs for 12 months.
  • Your credit rating will be affected by the IVA, and you will have to work to build up the file once completed.
  • You will be included on the insolvency register.
  • The procedure can prove costly, so it’s worth seeking professional bankruptcy and IVA advice.

More information on individual voluntary arrangements is available here.

Why choose bankruptcy?

On the other hand, filing for bankruptcy may prove a better option if:

  • You can’t see another option to repay your debts, and you need to do so quickly.
  • You don’t have many belongings, or there is very little equity at risk in your home.
  • It is completed over a much shorter period than an IVA. Usually, individuals are discharged from bankruptcy after a year and income payments only last for 3 years.
  • Creditors cannot demand more as the order is enforced by the court.

Disadvantages of bankruptcy

  • Avoid bankruptcy or seek early bankruptcy advice if you work in accounting, or are a solicitor or estate agent, as the procedure may affect your ability to work in the sector.
  • Your circumstances are likely to change in the future and you are set to receive a lump sum. It may be better to use this for debt management.
  • You will be placed on the insolvency register and your debt will become public.

 

More information on the assets that can be subject to removal during bankruptcy can be found here.

It’s also important to note that if your assets do not hold much value – such as under £1,000 – you may be better looking into a debt relief order.

Ultimately, there are differences between the two and there is a lot to consider for an IVA v bankruptcy. Above all, you must seek IVA and bankruptcy advice to ensure you choose the best solution. Our business rescue experts can take you through both procedures and discuss the most suitable arrangement.

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