Bankruptcies & IVAs

In some ways, bankruptcies and IVAs (Individual Voluntary Arrangements) are quite similar, but in some ways they’re very different:

Bankruptcies and IVAs - main similarities

• Bankruptcies and IVAs are both forms of insolvency
• Both allow people to repay what they can of their debt and write off the rest
• Both stay on a credit report for 6 years, which can affect the individual’s ability to get credit
• Both limit the individual’s borrowing while they are in progress
• Neither can write off certain types of debt (e.g. court fines, secured debts & child support payments)

Bankruptcies and IVAs – main differences

Duration: 5 years, in most cases

Effect on home: Very unlikely to force sale of home; will probably require release of some equity

Effect on career: Some companies may not employ an individual with an IVA

Publicity: Not advertised, but will appear in the Individual Insolvency Register (which is publicly available)

Bankruptcy

Duration: Normally 1 year (payments can last for 3 years; in exceptional cases, a Bankruptcy Restriction Order may be granted, which can last 15 years)

Effect on home: Very likely to force sale of home

Effect on career: Bankrupt individuals cannot hold certain positions: e.g. company director, local government councillor or justice of the peace

Publicity: Bankruptcy will be advertised in newspapers

There’s no simple answer to the question “Which is better?” It depends on the individual’s circumstances:

• For someone with high debts and few assets, bankruptcy may be the better option if they’re unemployed / on a low income and their financial situation is unlikely to improve.
• An IVA, on the other hand, might be more appropriate if they can afford a regular contribution, own a home, work in a certain profession and / or want to keep their insolvency private.
  
  

Other solutions – possible alternatives to insolvency

• Debt management plan
• Debt consolidation loan
• Debt consolidation mortgage