Pros and Cons of an IVA

Total Unsecured Debt

Under £15000 Over £15000

Number of Creditors

Monthly Income

Are you a Home Owner

Yes No

We've already explained in detail what can happen during an IVA and bankruptcy procedure. Here we've compiled a debt help summary of the implications of opting either for bankruptcy or an Individual Voluntary Arrangement. There are advantages and disadvantages of both, but it must be emphasised that an individual struggling with debt problems has their own unique circumstances. Any insolvency procedure such as an IVA or bankruptcy should not be undertaken lightly and without first seeking professional debt advice.

Pros and Cons of an IVA

What are the pros of an IVA?

• You make one affordable monthly payment
• Provided you maintain your payments interest and charges are usually frozen
• You pay for a fixed period of, usually, 60 months (Can be 72 months or greater)
• Unsecured creditors can not take any further action
• Once approved it is legally binding on your creditors
• An IVA is a real alternative to bankruptcy
• If only 25% of your creditors vote against the IVA it will still be accepted and they will be bound by its terms
• Your Insolvency Practitioner will prepare a proposal with you, including agreeing a budget of your household expenditure using guidelines acceptable to creditors
• You will normally be able to continue running any business

What are the cons of an IVA?

• To be accepted 75% of creditors who vote need to agree to the IVA
• If the IVA fails you could be made bankrupt
• Homeowners may be asked to release equity from their home in the 4th year of the IVA. If you are unable to obtain a re mortgage, then the term may increase by a further 12 months
• Because you will be breaking your original agreements with your creditors you may receive a default notice which will be listed with credit reference agencies. As a result it will be difficult for you to get credit for up to six years after completion of the plan including mortgages, mobile phone contracts etc
• If the IVA fails you could still owe your creditors the full amount of what you owed at the start
• There will be fees payable

Pros and Cons of Bankruptcy

• The period of bankruptcy is much shorter than for an IVA. Since the changes made in the Enterprise Act 2002, a bankrupt can be discharged in as little as a year with their debts cleared.
• Bankruptcy should not be considered as a soft option though. The disadvantage of bankruptcy is that you lose control of all your assets, and you may lose your home.
• For many individuals without such assets, then bankruptcy may be a preferred option. This is especially the case if a person is not necessarily concerned about the stigma of bankruptcy, or is not in a job or an environment where their future career can be jeopardised, or is not worried about the prospect of being barred from holding public office.

Conclusions

If you become insolvent, whether or not you decide to apply for an IVA or bankruptcy, it has important implications for your long-term financial status, and possibly your job.There are differences in how your assets are handled, particularly your home, as well as in the time period before you are either discharged as a bankrupt or have completed your IVA.

There are advantages and disadvantages to both depending on your circumstances, but no one should decide which is the best option without first seeking professional debt advice.

If you have any questions about an IVA or bankruptcy procedure, you can get debt advice by calling us on 08000 434 336 any time; 24 hours 7 days a week, or if you prefer you can fill out our online form.