Bankruptcy vs IVA

As much as you might have tried to avoid going into debts, in this times it began being more and more difficult and, at one point, you might even have found yourself in the terrible situation of not being able anymore to cover your payments. In UK, there are options available for you to consider, in order to find the optimal way to relieve you of your debts and ensure that also your creditors will be covered. Of course, this procedures will differ in UK states, Northern Ireland and Scotland, so it's best if you find an appropriate financial consultant with your area, who will analyse your particular situation and decide on the best course of action you should follow to exit this trying situation.
But there are some basic conditions that can be underlined here and they will offer you a better understanding of your situation and what those afore-mentioned solutions actually mean and give you a preliminary idea of what will be best suited for your needs.
The IVA – Individual Voluntary Agreement
The IVA is a legally binding agreement between you and your creditors. This arrangement will span normally for 5 years and in this this period you will have agreed to pay what you can afford outside reasonable living costs. The IVA will have to be legally set up by an Insolvency Practioner (IP). The IVA will have to contain all your unsecured debts. The IVA was introduced by the government as part of the Insolvency Act in 1986 as a valuable alternative to bankruptcy, since it allows you to make a proposal to your creditors and to reach a final, this time legally binding settlement.
Why is this a better solution? An IVA settlement will give you affordable monthly payments over the afore-mentioned period of five years, while the interest on your loan will freeze as decided by law and the creditors will be forbidden to contact you directly, all being handled only through your selected Insolvency Practicioner.
Since payments will be based on what you are realistically able to afford, exact amounts will vary. The IVA settlement is suitable for your situation if your unsecured debts are at least somewhere in the lines of £12,000 -£20,000, your monthly payments are at least £150 and you must also have have a stable monthly income. There are multiple advantages for chosing an IVA.
1. The monthly payment will be affordable.
2. The interest payments are frozen by law.
3. You will be able to keep your house and your car (which mostly will not happen if you apply for bankruptcy), being protected from any legal action and your unsecured creditors will not be allowed to force you to sell it.
4. The overall debt amount will be reduced substantially.
5. You can clear all your debts in five years and, unlike with bankruptcy, where your status may be made public, no one outside the parties involved will be informed of your IVA settlement.
Certainly, there are a few drawbacks related to an IVA settlement:
1. You are not allowed to apply for other credits durind the period of you IVA.
2. The IVA settlement will affect your credit rationg for a period of a year after you have finished covering it.
3. It will require for you to be able to cover 75% of the value in order for your creditors to agree.
4. The IVA will bind you for a period of five years.
5. If you have equity in your home, you may be required to release it to your creditors, done usually by increasing the level of your mortgage towards the end of your settlement; if this is not possible, you might be required to extend your payments for up to another twelve months period.

When it comes to bankruptcy, the common belief is that this procedure is something that companies and businesses go through when they beging having trouble and going deeper into debts they cannot cover. But things aren't quite like this. Indeed, it is a solution for companies or businesses, but the bankruptcy procedure is actually used also for dealing with individual people’s personal debts.This procedure is an option you might find yourself needing to consider if you are insolvent, meaning if you have debts which you can in no way possibly repay.
From many points of view, filing for bankruptcy can be one's last resort. Bankruptcy is a legal procedure, ultimate way of dealing with debts you cannot pay. Your assets will be used to pay your creditors, namely, the persons you owe money to. You will be a subject to quite many restrictions and you will be considered discharged, or freed from your debts after a court established period of time.

Anyone is able apply to the court to decide them bankrupt, not only companies, but also individuals, sole traders or partnership members. But it must be kept in mind that the procedures for companies and partnerships will be different from those for individuals or self-employed personas.
It is only a court of law that can declare you bankrupt, and also not every courts deals with bankruptcy cases. It can be a volutary decision you will be able to make, thus you can make yourself bankrupt by petitioning, or applying, to the court. Also, your creditors can usually do that for you, petition the court if you owe them at least £750. Afterwards, you are bankrupt once the court issues a bankruptcy order against you.
Bankruptcy fees and procedures you have to follow are different in states of UK and these are also different in Northern Ireland and Scotland.

The next step after this is that you have to hand over any assets of value and also you will have to cooperate with the trustee - a person appointed to manage your bankruptcy – and hand over the financial interest in your home. Your trustee will be either an insolvency practitioner, namely an authorised debt specialist, or an Official Receiver, an officer nominated by the bankruptcy court. Since appointing a trustee will take a bit of time, this Official Receiver will manage your bankruptcy at first. They will collect all information on your finances and will also protect your assets for your creditors.
If your assets are significant, it is likely the Official Receiver will recommend your creditors to appoint an insolvency practitioner as trustee. If that is not the case, then the Official Receiver will continue acting as trustee.

Insolvency law in UK was created so that it can give honest debtors a clean start. This process will relieve you of the most part of your debts by allowing you to repay creditors as much as possible through the sale of your existing assets. Excluded from these assets are such as tools of a trade and also a solvent spouse’s share in your house.

Your bankruptcy will normally last twelve months, during which time you will be subject to various restrictions: you cannot be a company director, or take a position in the police force or military, or be employed in various professional positions and you also you cannot take out a mortgage,
Your ‘Bankruptcy Order’ may be accompanied by an ‘Income Payment Order’, meaning that if you can afford to do so, you will have to make payments to the court over a period of 3 years.
Other risks to me expected are that you may love your house if there is equity in it (although it may not be physically repossessed for 12 months), and the same can happen with your car if it is worth more than £2500. These assets will be seized by the court and divided between your creditors.
After this one year period is over, you will most likely be discharged and be able to resume your life now debt free, even though some of the disadvantages of the IVA settlement are even more visible in the bankruptcy case. Your credit score will be negatively affected and it will be increasingly difficult or expensive for you to get another credit. Also, the list of insolvent persons in the UK is accesible to the public, so your (former) situation can be known by whomever might be interested.
In any case, before making a decision on what option you should chose, it's best that you will seek professional counsel and with these advisors you will be able to make the best possible choice.

Post a comment