Choosing Between Bankruptcy and an IVA

Total Unsecured Debt

Under £15000 Over £15000

Number of Creditors

Monthly Income

Are you a Home Owner

Yes No

Based upon reports by the Insolvency Service, 63,000 went bankruptcy while 44,000 chose Individual Voluntary Arrangements (IVAs). IVAs have seen a higher level of growth than bankruptcy, perhaps because people many people do not want to suffer the social stigma of bankruptcy even though many times this may be the best option. A spokesperson for Consumer Credit Counseling Services warned that both IVAs and bankruptcy should only be used as last resorts, but you should choose the correct path when you are forced into insolvency.

What path you choose depends upon your personal circumstances. IVAs are usually the best solution for those who have a regular income, debts over £15,000, a major asset they wish to protect from seizure and enough discipline to follow through with the contract.

In order for an IVA to work, the debtor must be able to afford to pay at least £200 per month to their debts, and if they are going to struggle in order to raise that amount throughout the term of the contract, they should look at options other than an IVA. That is the reason that most people who choose IVAs are employed.

The benefit of an IVA is that your home is largely protected from any action by creditors, and you also have some influence over how other assets, such as cars, are treated. A creditor cannot force a debtor to sell their home in order to satisfy debts, but at the closure of the IVA contract, they can force them to revalue the property. If the property has risen in value, they do have a right to ask the debtor to release some of the equity in order to make a final payment to the outstanding debt. If a debtor is driving an expensive car, a creditor can also ask them to sell it and buy a cheaper model, using the difference to pay creditors.

Senior Managers & Directors who find themselves deeply into debt, usually choose IVAs over bankruptcy because choosing bankruptcy means that they must obtain permission from the court to become involved in the promotion, formation, or management of a company. Their professional accreditation will also suffer if they work in financial careers such as accounting.

• You do not have to sell major assets such as your house
• You are generally not restricted from any employment
• Any debt you can not afford to pay back is written off at the end of the arrangement.

Cons

• The process can be long and you need to be committed. If the program fails, there are consequences - your IP will fully brief you on these before entering you into the IVA process.
• If the value of your property increases during the IVA, creditors can ask for some of this to be released to them in the last year of the IVA.