IVA vs. Bankruptcy

There are some people in the UK that may not be sure if they should apply for an IVA or a Bankruptcy. In this guide we will give a high-level overview of the differences between the two, so you can figure out which is the best way to go.

It really depends on each individual personal circumstances and your character.
Some important points to consider:

  • Do you have a regular job?
  • How much is your income?
  • Do you rent or own your house?

Bankruptcy option

You declare Bankruptcy when you are unable to pay any of your debts anymore. This is a possible solution for people on a low income. If you do not have a full time job and you are only renting your home, bankruptcy could be a way to go.

Bankruptcy usually lasts one year, sometimes three in the UK.
It can affect your job; it can force you to sell your home if you own one.
Bankruptcy will limit the time when you can borrow money again (usually six years). You cannot add secured loans onto your Bankruptcy.

It is important that you talk with someone expert before you decide to go bankrupt. Make sure that there are no other options available for you. It may seem like it is an easy way out but it can really ruin your credit for the rest of your life.

When you go bankrupt you usually have to pay a good amount of money out. If you are having a lot of financial problems this could put a strain on you.

Individual Voluntary Arrangement - IVA option

IVA is for the person who holds a full time job with a higher end income. It is good for those that own their own house. An IVA will not force you to sell your property but may have to sell some other equity.

An IVA takes five years to complete. It is a discreet solution, your name won't be published to any press, where if you go bankrupt your name must be made public. You cannot add secure loans or student loans to the IVA.

How an IVA Works

The first thing you need to do is speak to an Insolvency Practitioner. The Insolvency Practitioner will look at your situation and then they will set up a repayment plan, if you choose to do so.
You have to be at least £15,000 in debt to consider an IVA in England. After the plan is drawn up then they will set up a meeting with your creditors. The creditors will decide if they want to do agree to it. 75% of your creditors must agree with it before it can begin.

You will pay an amount (set up on your ability to pay) each month into the IVA application. This money will be divided among all your creditors. This will be done each month for 60 months.
If it is not all paid off at the end of the 60 months than the rest of the debts are written off as paid in full.

The cost of the IVA is taken out of the money you pay in each month. This keeps you from paying out any extra money.

Bankruptcy vs. IVA

So which is the best way to go Bankruptcy or IVA? It all depends on each individual. It depends on how far in debt that you are. It depends on how much money you have on hand and if you own your property.
But looking at it from the future of your financial state an IVA will affect you a lot less than a bankruptcy will.

An IVA will not cost you to lose your house. It will not affect your job. It will show creditors that you are trying to pay the money that is owed to them in a reasonable way.
You won’t have to pay out big amount of money separate from the IVA.

Creditors are generally favorable to an IVA plan because it will allow them to recover some if not of their money back that they may never get otherwise. When a person goes bankrupt Creditors will receive no money so they would prefer an IVA to Bankruptcy.

Whatever you decide, IVA or Bankruptcy, remember to talk with someone expert and make sure you understand Pro and Cons of both.
Make sure you get upfront all the costs involved so you won't have any unpleasant surprises.

Highlights:

Bankruptcy is sever; consider this option if you can't afford anymore to pay your debt and you don't own your house. An IVA is a more reasonable debt solution but you can apply only with a regular income.

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