Bankruptcy And IVA Comparison

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What is the difference between bankruptcy and an IVA?

It’s no secret the number of insolvency cases in Britain has increased over the last four years. An era that will be remembered for financial instability and austerity, the impact on individuals of high borrowing and inflation rates, low interest on savings, and a downsized UK Plc has been pronounced.

Job losses and an overall reduction in disposable income means it’s easier than ever for debts to spiral out of control. As such it’s unsurprising more people are looking at options that can offer an escape from their creditors, with bankruptcy the most widely recognised route out of a monetary crisis. Yet it may not always be entirely necessary.

An Individual Voluntary Arrangement can provide an alternative to bankruptcy with less severe consequences. This by no means should be regarded as an easy option, mind, with IVAs representing legally binding contracts wherein a debtor enters into an agreement with their creditors. Failure to adhere to this will result in further court action.

IVAs are serious undertakings then, just like bankruptcy, but there are some differences. The latter requires fees to be paid at court (currently £700 for petitions in England & Wales), will count against your credit rating, and can see property, savings, vehicles and more sold off. Ongoing contributions to creditors can also be enforced for around three years, despite discharge usually taking place after 12 months.

By comparison you will enter into an IVA for five to six years on average, yet the immediate repercussions are less significant. Anyone considering an IVA must have around £150 or more surplus income per month, and it’s extremely unlikely this route would ever result in the loss of someone’s home. Ongoing payments to creditors must be made, though, with a percentage of this also used to pay for Nominee and Supervisory fees.

Both bankruptcies and IVAs will remain on your credit record for six years, and can effect employment, depending on what it is you do for a living. Therefore it’s vital to check how either could impact on your job before making any decision to proceed. Your IVA and bankruptcy petition will be public knowledge too, as they are published on the Insolvency Register for anyone to see. Bankruptcies also have to appear in newspapers, so it’s fair to assume more people will find out if you go down this route.

Once the bankruptcy and IVA have ended you can return to relative financial normality, but during both of these processes life will be markedly different. Only basic bank accounts will be available to you, and it will not be possible to obtain credit. The most important thing to understand though is that each scenario is treated individually by the insolvency staff and courts, meaning consulting professionally trained, seasoned experts for advice before committing to any decision is crucial in order to avoid making costly mistakes. All forms of insolvency are life changing, at least in the short term if not over a longer period of time, and with that in mind it’s important to respect them as such.