Choosing Between Bankruptcy and an IVA
What's your best option when you have serious debt problems?
In order for an IVA to work, the debtor must be able to afford to pay at least £200 per month on 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 this 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 the equity in order to make a final payment on 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.
At the end of an IVA contract, the amount that is written off can be significant; however, lenders are tightening the reins on the number of IVAs they approve as well as how much of the debt they are willing to write off. In the past, HSBC used to accept IVAs that gave them twenty-five pence on every £1, but they have now raised the minimum to forty pence per £1 of loan value.
Insolvency practitioners arrange IVAs, which can have start up costs that run into the thousands. The insolvency companies claim that the consumers do not bear the cost of these expenses, but the harsh reality is that during the first year of the contract, all repayments go to the insolvency practitioner.
Pros
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You do not have to sell major assets such as your house
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You are not restricted from any employment
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Any debt you can not afford to pay back is written off at the end of the arrangement.
Cons
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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.
