Bankruptcy or IVA – Which Should You Choose?

During the first quarter of 2008, over 25,000 people in the UK filed for bankruptcy or an Individual Voluntary Arrangement (IVA). That calculates to over 275 per day according to figures released by the Government's Insolvency Service.

There is a great deal of confusion over how each one works and what you will be required to pay.

When you are made bankrupt, the law declares you are unable to repay your debts. You have to file a petition in court, and if it is approved, your assets may be sold and the proceeds will go to your creditors to settle a portion of what you owe. There is a £150 court fee and a fee of £450 to the Insolvency Service. If you are receiving benefits, you can apply for a waiver of the court fee. There are ongoing costs if you have property to be disposed of, but those costs will be deducted from the proceeds of the sale.

Although you can be discharged from bankruptcy in the UK after a year, it will remain on your credit record for six years. Though it may seem advantageous to go bankrupt and have all of your debts discharged completely, if you have a home, you may lose it in the process. In addition, your credit rating will be affected for at least six years, you name and address may be published in the local newspaper, and you will be unable to pursue certain professions, such as accountancy.

For those UK residents who have substantial debts and no assets, it may be the best option for protection from creditors. For those with significant assests, an IVA may be the best choice.

An Individual Voluntary Arrangement, or IVA, is a formal and legal agreement between a debtor and their creditors. It is drawn up by an Insolvency Practitioner that works with you and your creditors to reduce the amounts you need in order to pay off your debts. Under the agreement, interest and charges are frozen.

An IVA has several advantages over declaring oneself bankrupt for many people, especially in the UK where one can on retain assets such as property with an IVA.