IVA or Bankruptcy: What You Need To Know

Insolvency is something that should be taken seriously hence you will need to choose a debt solution that will allow you to become debt free as quickly as possible. If you are struggling to pay back your creditors or you feel trapped by your debts, then it is time to act.

Bankruptcy and Individual Voluntary Arrangement (IVA) are two popular debt solutions in the UK that generally involve your debts being written off. These two insolvency solutions have certain differences and similarities that you may need to consider before deciding which is the best solution for you. If you owe your creditors more than the actual value of your assets or you simply cannot pay back your debt when the bill is due, then you are insolvent and you may need help to clear your debts.

IVA or Bankruptcy

Both Individual Voluntary Agreement (IVA) and bankruptcy are a form of insolvency that will enable you to clear your unsecured debts but both solutions may require you to make some hard budgeting decisions. These two popular debt solutions will also affect your perfect credit rating for a period of at least 6 years. An IVA enables you to make affordable monthly payments to an insolvency practitioner for an agreed period of time that is usually between 5 to 6 years or 60 months. IVAs are legally binding agreements between creditors and their debtors which means that each party must abide by the agreement for the entire duration.

Before signing up for an IVA, you will need to come up with a proposal that states how much you will be able to pay your creditors every month and if a majority of your creditors (at least 75 per cent) agree with your proposal, you will be required to make these payments without fail for the entire period of the agreement. Any balance of the covered debts remaining after the IVA will be written off. However, if you fail to make the agreed payments, the IVA arrangement may fail and your creditors may file a bankruptcy petition against you.

Bankruptcy is another form of insolvency that is ideal for you if you are looking for a quick and easy way to be debt free. In order to apply for bankruptcy, you will be required to submit an online application form upon payment of a non-refundable fee of £680. However, residents of Northern Ireland must make their applications through an insolvency service or from the court meaning that the application costs may differ. As part of your bankruptcy order, your assets which include your house and car may have to be sold in order to recover some of your debts. Depending on your financial situation, you may also have to contribute from your monthly income once a bankruptcy order has been made.

The initial stages of the bankruptcy will be handled by an official receiver who is attached to the Insolvency Service if an insolvency practitioner is not appointed to take up that role. The official receiver will become your trustee and will be responsible for selling some of your assets and informing your creditors how the money raised will be distributed. If you have significant assets, an insolvency practitioner who in most cases will be an accountant or solicitor may be used. The law requires you to fully cooperate with them. The person who takes care of your assets or the trustee will sell them and the money will be used to pay for the cost of the bankruptcy process after which your creditors will then be paid. The trustee may also place an advertisement to ask your creditors to submit their claims. Any money that will be left over after all your creditors have been paid in full will be returned to you.

What Both Options Will Mean For You

Bankruptcy is much quicker than an Individual Voluntary Agreement since you can be discharged from bankruptcy after 12 months while an IVA typically lasts for a period of 5 years but could be extended by a year in some circumstances. With an IVA you will not have to sell your home or car unlike in bankruptcy where some of your assets like the house and your car may be sold to recover the debt. Bankruptcy may also affect your career since some employers may not allow you to hold some official positions if you have been declared bankrupt. Both IVA and bankruptcy may affect your ability to get employment or to keep your job thus it is important to be cautious of what being insolvent could mean to you. It is important to look for a qualified and independent advisor when choosing the best debt solution between bankruptcy, an IVA or any other option.