IVA vs. Bankruptcy
Here we will try and help answer one of the most common questions asked in relation to the choice faced by many people struggling with their debts: Should I opt for an IVA or should I apply to make myself Bankrupt?
The Facts You Should Know About An IVA vs. Bankruptcy
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Simply call our helpline on 0800 088 7502.
Serious financial pressure
Chances are you wouldn’t be reading this unless you had some serious financial worries.
You know that more and more people are in the same position as you - too much borrowed, not enough money left each month to pay it back with.
Costs of living on the rise. More and more pressure from creditors - letters, calls at home and even at work, and threats of legal action and bailiff visits.
You’ve heard all about 'The national debt mountain' in the news and didn’t think it would affect you - but it has.
Over 120,000 people are expected to declare themselves insolvent in 2016. They’re at the end of the financial road and they've decided to take the necessary action to deal with their debt problem.
So what do you do when it all goes wrong?
Well, sticking your head in the sand might work for a while, but the debt won't go away and you'll need a thick skin to shrug off all the harassing calls from the creditors - so sooner or later you'll need to deal with the situation head on.
So let's start now….
There are two ways for you to deal 'formally' with a severe debt problem above £30,000.
Bankruptcy is the big one that people fear and, although it’s easier than it was before the introduction of the Enterprise Act of 2002, it can still be a daunting and distressing experience.
- You will be required to submit your bankruptcy application online.
- You'll be expected to pay bankruptcy fees of £680 per person.
- Your Bankruptcy is advertised in the London Gazette.
- You will be interviewed by the Official Receiver and possibly by a Trustee in Bankruptcy too.
- You’ll be expected to make payments every month for three years if they decide you can afford it and, if you don’t agree, they can get a Court Order and make you pay.
- You will lose your bank account - as your account will be temporarily frozen by the Official Receiver.
- You can’t be a director of a limited company if you are bankrupt.
- If you are in the armed services or police force you may be discharged or disciplined.
- The Official Receiver will claim all of your share of the equity in your house. If you can’t arrange for someone to buy the equity from them then they can sell your house whether you like it or not, even if you’ve got children or other dependants living with you.
Bankruptcy is a legal process and, as such, the law can treat bankrupts harshly if you don’t co-operate with the Official Receiver.
But let’s be clear: It’s not all bad.
It’s not the end of the world - even though it might feel like it.
- It’s a clean break that allows you to draw a line under the past.
- Most unsecured debts will be written off through bankruptcy.
- Your creditors claim from the Official Receiver - not you, so they’re off your case.
- If you’ve got a pension, it’s generally safe.
- Most bankruptcies will be discharged after 12 months and, if the Official Receiver sees yours as a straight forward case, maybe sooner.
However, if the prospect of declaring yourself bankrupt is too much for you then there is an alternative solution which it may be possible for you to apply for…..
An Individual Voluntary Arrangement - IVA
The IVA was created thirty years ago but has become more and more popular in the last ten or so years. The major difference between an IVA and Bankruptcy is that...
An IVA keeps you in control.
A licensed insolvency practitioner will put together a proposal for your creditors, who vote whether they will accept your offer. Most IVA’s depend on you making reasonable monthly payments - that are based on affordability - and they typically last for five years. If you are a homeowner you maybe required to release equity from you property to your creditors through the IVA or extend the IVA term for 12 months if you have equity but can't get access to it.
An IVA protects you and your assets from your creditors - once agreed, they can’t change their minds as it is legally binding.
With an IVA
- You make one agreed payment each month for a pre-arranged fixed period, once you successfully reach the end of your agreed term, you are debt free - even if you haven't actually repaid all your outstanding debt.
- You are allowed to keep any property you own, though you will have to allow the equity in the property form part of the agreement.
- You repay what you can actually afford rather than having to keep up with your previous debt commitments.
- All fees and costs are built in to the plan - so you don’t get a bill for setting up or running the IVA - the fees come out of the money that you pay to your creditors through your IVA fund.
- At the end of your IVA you are completely debt free and, even though you may have had some of your original debt written-off, you can proceed with a clear conscience as you’ve repaid all you could afford.
- Your creditors get paid what you can afford to pay them - which after the costs of the IVA are deducted from your IVA fund, could be as little as 20p every pound you owed them.
An IVA is a serious step. It’s not right for everyone and it’s a burden that will be with you for, maybe, five or six years. You will have to tell your creditors every detail of your financial life. You must do whatever the proposal says. But if you want to pay back what you can reasonably afford, then it ought to be the first option you explore.
These are the two ways to deal with insolvency but if you are still unsure which is the right one for you then you can make it easier for yourself by asking us to help.
If you think you are ready to take the necessary action to deal with your debt problem, why not call our helpline and ask for a free and confidential consultation.
Our aim is to take the confusion out of getting debt advice by offering FREE help and advice via one-to-one telephone consultations.
During your free consultation we will explain to you all the pros and cons of all the alternative debt solutions available to you.
There will be no pressure, no jargon and no sales gimmicks, just honest, accurate and ethical advice.
Our small UK based hand-picked team have no sales targets, are not commission driven and each of our advisers have substantial life experiences to draw on, which we believe to be crucial when discussing real life issues with real people who are experiencing real debt problems.
If you are still in the process of doing some research into IVAs, why not take a look at some of our many articles. They cover the complete subject from start to finish, offering a clear insight into some of the more complex areas of IVAs.
Alternatively, why not read through the IVA FAQs, written to help people find answers to the more common IVA questions.
We are here to help, not to judge.
Make that call now, or alternatively, complete the form below and one of our advisers will contact you at your preferred time.
This article is for general guidance only. You should take professional advice on your particular personal circumstances before taking, or refraining from taking, any action based on the contents of this article. Any liability in negligence, contract or otherwise arising from any party taking or refraining from taking any action on the basis of the contents of this article is hereby excluded to the fullest extent allowable in law.