Iva And Bankruptcy - The Advantages

IVAs (Individual Voluntary Arrangements) and bankruptcy are both forms of insolvency. They're both legally binding solutions which allow people who can't afford to repay their debts to clear them - by repaying what they can and writing off the rest.

Neither, however, is actually 'better' than the other, even though there are very real differences between the two. In relation to each other, IVAs and bankruptcies each offer advantages and disadvantages which mean that one person would be well advised to consider an IVA, while another would be much better off entering bankruptcy.

There are various advantages of an IVA over bankruptcy. For example:

• An IVA is highly unlikely to result in the individual losing their home, although they'll probably be required to release equity midway through the final year of their IVA, so they can pay more into the IVA.
• Someone in bankruptcy, on the other hand, is by no means certain to lose their home - but they would need to find a family member or friend to buy out their 'interest' in the property.

• Entering an IVA might be the better option for someone who's concerned about publicity, as it wouldn't be advertised anywhere, although it would appear in the publicly available Insolvency Register.
• Bankruptcies, meanwhile, are advertised in the London Gazette and in the local newspaper - as well as being included in the publicly available Insolvency Register.

Equally, there are various advantages of bankruptcy over an IVA. For example:

• People who enter bankruptcy tend to be automatically discharged after one year, although they may be required to make contributions for a total of three years. In certain (rare) circumstances, a Bankruptcy Restriction Order may be issued, subjecting the individual to certain restrictions for between 2 and 15 years.
• Most IVAs, however, will last for five years, and the individual will be required to make payments throughout.

Plus, an IVA is not likely to be appropriate for someone whose financial circumstances are likely to change, since it would require regular fixed payments throughout the term of the IVA - and if the individual failed to keep up with them, their lenders would be free to consider alternatives (such as trying to make them bankrupt) if the IVA failed.

Finally, it's important to note that entering either an IVA or bankruptcy will have a serious effect on the individual's credit rating. They'll both stay on their credit report for six years - but people who've been made bankrupt may find they have to admit their bankruptcy on certain application forms, no matter how long about they were made bankrupt.

By: Stuart Grimes

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For more information on a voluntary arrangement speak to an IVA adviser.