If you’re struggling with debts to multiple creditors, there are two choices which could help restore financial control – bankruptcy and Individual Voluntary Arrangements (IVAs).
An IVA is – by far – the most popular of these options. According to stats from the Insolvency Service, during 2019, more than 122,000 individual voluntary arrangements were approved. In comparison, just over 16,000 bankruptcies took place.
However, just because one solution is more popular than the other doesn’t mean you should automatically jump onto an IVA and not consider bankruptcy. To help you make a decision, we have broken down these two options so you can see how this could affect you.
What do bankruptcy and IVA both involve?
IVA and bankruptcy are forms of insolvency. Ultimately, they both work to repay your debts and, with either of these arrangements, you could write off significant parts of what you owe.
As well as this, IVA and bankruptcy are formal debt solutions. This means, once either of these arrangements is up and running, you shouldn’t be contacted by creditors. Therefore, no more demands for payment and no more threats of legal action.
What’s the difference between an IVA and bankruptcy?
IVA and bankruptcy are similar but they differ in several key areas. For example:
Creditors must approve an IVA
When applying for an IVA, you will work with a qualified professional (an insolvency practitioner) to create a proposal for your creditors. For this arrangement to be approved, the lenders who hold at least 75% of your debt must agree. If they don’t, either the IVA will fail or you may need to make amendments.
Bankruptcy, on the other hand, typically involves an online application and court fees of £680.
The length differs
Typically, bankruptcy is a much faster way than an IVA to resolve your debts. Generally, this solution should be resolved within a year. Although, if your income allows it, you may need to make payments to your lenders for three years.
In contrast, an IVA usually lasts at least five years. It can run to six if you’re a homeowner and able to release equity from your property.
Your assets are affected differently
One of the key benefits of an IVA is that, once this is approved, your assets are protected and remain yours. Bankruptcy, on the other hand, is a different story. If your home is worth enough, it may be sold to raise money to cover your debts. Furthermore, if you have a car or any other vehicle, you’ll be expected to sell it.
Your employment may be affected
Although your employment could be affected with either insolvency option, bankruptcy generally carries more serious consequences. For example, some professions and positions aren’t available to those who have been made bankrupt. If you’re worried about your current job, it’s worth reviewing your contract to identify whether insolvency would affect your situation.
Is an IVA better than bankruptcy?
Whether or not bankruptcy is preferable to an IVA depends upon your circumstances. Generally speaking though, this arrangement may be better if:
- You have assets, such as a home, you don’t want to lose
- Your job would be adversely affected by bankruptcy
- You own a business
- You have spare income available which can go towards paying your debts
Which solution is right for me?
Choosing between an IVA or bankruptcy is a big decision and one which should not be made without consulting a debt advisor first. Fortunately, we’ve got the experience necessary to identify the best choice within moments.
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