IVA vs Bankruptcy

IVA or Bankruptcy? An Analysis

An IVA and bankruptcy are two legally-binding arrangements between you and your creditors to take control of your unsecured debts. They allow debtors to handle their obligations. In both cases, your creditors must adhere to the terms of the agreements. So below are the main differences between an IVA or Bankruptcy.

The choice of an IVA or bankruptcy depends on your particular situation.

This is why it’s critical that you understand the benefits and drawbacks of both options so you can make an educated choice about which one to choose.

What is an Individual Voluntary Arrangement (IVA)

An IVA is a legally binding debt solution between you and your creditors. It covers the terms of how long it will take you to pay off your debt to your creditors and what measures you’ll have to undertake.

Your monthly payments to your creditors are based on what you can afford. If some debt is still unpaid after the agreed-upon duration, it will be written off.

Individual Voluntary Arrangements (IVAs) provide a wonderful alternative for many debtors to clear unsecured debt, as evidenced by the fact that thousands of people choose them each year. It’s quite adaptable to your demands, and you get the assistance of an Insolvency Practitioner (IP), who makes sure you’re being treated fairly. During the process, your assets will be safeguarded, and creditors will be unable to take any legal action against you. Make sure that the IP is regulated by a company such as the Insolvency Practitioners Association.

The Insolvency Practitioner (IP) is the main individual you deal with throughout your IVA. They are in charge of negotiations between you and your creditors. They also assist you in drafting your initial IVA proposal. Furthermore, if you want assistance with any additional concerns while through the IVA, your IP is the person to contact.

However, you must remember that it isn’t for everyone. There are several concerns to consider, to be sure.

A typical IVA, for example, lasts five years. During this period, you will be allowed just enough money to meet your basic needs. The rest of your spare income will go towards your monthly repayments.

Not to mention that it has a significant influence on your credit rating. It will be kept in your credit file for the next six years. You’ll have trouble getting credit during this time period because most IVAs last five years. This means that the information of the IVA will be kept in your credit report for an additional 12 months after it has come to an end.

How Does Bankruptcy Work? 

In bankruptcy, your creditors will be paid by liquidating (selling) some of your assets like your car or house. Depending on your income and other financial factors, you may also have to make regular payments towards the debt for up to 3 years.

The official receiver is the figurehead in bankruptcy. They investigate your financial status and deal directly with your creditors. If you have assets, the position of Official Receiver is usually taken by a Trustee in Bankruptcy instead. Throughout the course of your bankruptcy, they maintain track of your affairs.

Bankruptcy is generally faster than an IVA. It takes on average 12 months to complete. However, depending on your financial status, you may have to make further payments toward your obligations for the next three years.

Your bankruptcy is finished and you’re discharged by the Trustee in Bankruptcy once your debts are written off.

When Would Bankruptcy Be Right for Me? 

Oftentimes, people believe that filing for bankruptcy is better than an IVA because they’ll likely have to pay creditors less money and over a shorter period of time.

Although there are a few risks associated with bankruptcy, you should weigh them against the benefits before making your decision.

  • If you declare bankruptcy, your creditors can seize all of your assets, including your car and home.
  • In bankruptcy, there are certain professions in which that person is no longer legally allowed to work.
  • Your credit will be bad for the next six years.
  • A bankruptcy filing will almost certainly be published in a newspaper.
  • If you own a business, it is likely that it will be shut down and the assets sold.

When would an IVA be Right for Me? 

An IVA usually lasts longer than bankruptcy, plus your assets are guaranteed to be protected. Also, it is much more flexible and only requires you to pay what you can afford.

However, there are drawbacks to consider:

  • If you’re not sure how much money you’ll have in the future, this might not be the best option for you. If you can’t make many of your monthly payments, it may fail.
  • If you’re not able to make your IVA payments, then the creditor isn’t obligated to follow the terms of the agreement. Hence, they could take court action against you and attempt to make you go bankrupt. 
  • If you go into it and it fails, you’ll be in a far worse financial condition than you were when you started.
  • You will have significant trouble securing credit for the next six years. 

I suggest that you opt for an IVA if: 

  • You have assets that you wish to safeguard, such as your home or car.
  • You operate a company that creates consistent, dependable income to put toward your monthly obligations.
  • If you go bankrupt, you will lose your job.
  • You have a significant lump sum of money that you may pay off your debts in full according to the conditions of your agreement.

Note: If you’re still confused about which option would be right for you, then I highly suggest seeking advice from us.

So, is an IVA or Bankruptcy the better option?

So, should you file for bankruptcy or an IVA? I hope the data provided today helps you in making an informed choice regarding your financial independence.

Make certain you get expert advice before making your decision and explore all debt solutions accessible to you.

If you require debt advice on available debt solutions contact us by leaving an enquiry or speak to one of our friendly team on 0113 237 9503.

If you would like to have a conversation through WhatsApp on 07762 145 581

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Customers can get free debt advice from the Money Advice Service – an organisation set up by the Government to offer free and impartial advice to those in debt. For more information from the Money Advice Service visit www.moneyadviceservice.org.uk. MAS is part of the Money & Pensions Service. We are not affiliated with MAS in any way.

Become Debt Free is a trading style of Re10 (Finance) Limited Registered Number 04651137.  Data Protection Act Registration Number – Z8613095

Become Debt Free specialise in providing and administering Individual Voluntary Arrangement (“IVA”) solutions to individuals based in England, Wales and Northern Ireland.  We do not administer Debt Management Plans, Debt Relief Orders, or any other debt solutions.  We only provide advice after completing or receiving an initial fact find where the individual(s) concerned meets the criteria for an IVA, therefore, all advice is given in reasonable contemplation of an insolvency appointment.

* To qualify for debt write off in an IVA with us, you must have a minimum of £7,000 of qualifying unsecured debt owed to two or more creditors.  The amount of debt write off is based on your own personal circumstances – typically this could be up to 85% of what you owe; and this has been achieved by over 10% of our customers who have successfully completed their IVA’s in the last 12 months.  The amount of debt write off differs for each customer and is dependent upon their individual financial circumstances and subject to the approval of their creditors.

Andrew Bowers is authorised in the UK to act as Insolvency Practitioner by the Insolvency Practitioners Association.


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