An IVA is the best debt solution for many people, but there are pros and cons compared with Bankruptcy.
IVA Advantages compared to Bankruptcy
It is our view that for those who qualify, an IVA is normally the best solution for both them and their creditors
Personal restrictions
The restrictions which are most likely to affect you during Bankruptcy which does not apply or apply to a lesser extent in an IVA.
- You can’t be the director of a limited company, and you can’t play a part in running a company without a court’s permission
- You can’t buy a house under the ‘right to buy’ scheme
- If you’re self-employed, you can’t use a business name which is different to the one you used before Bankruptcy unless you tell everyone you do business with about the Bankruptcy
- You’ll be barred from some jobs, for example being a charity trustee, insolvency practitioner, registrar or consumer credit licence holder
- If you help another vulnerable person manage their property and affairs using a power of attorney, this will be canceled
- You must cooperate with the official receiver. This includes handing over all documents and providing accurate information about your income, debts, and assets
You are unlikely to be subject to employment restrictions or lose your job when entering an IVA. However, there may be a specific clause relating to IVAs in your employment contract, particularly if you in a role of responsibility involving finance.
Home protected
You get to keep your home in an IVA. However, you may have to re-mortgage to release some equity in the final year of the IVA. In Bankruptcy, you can lose your home if the equity in it is needed to pay debts.
No potential investigation into your behaviour
In Bankruptcy, you may become subject to a Bankruptcy Restriction Order if the Court considers you have been blamable or reckless in your contribution to the Bankruptcy. A public official will investigate your financial affairs and report any irregularities to the Court. This could result in criminal proceedings.
Upfront costs
Bankruptcy involves making an online application which will cost you £680 even if the application gets rejected. You pay no such up-front cost with an IVA
IVA Downsides compared to Bankruptcy
You pay back more of your debt
IVAs were created, in part, to allow creditors to get back more of their money than they would through Bankruptcy. In Bankruptcy, you only make payments from income for up to 3 years and only if your income is high enough. In some cases, payments are not required.
With an IVA you agree to repay what you can afford every month for five years.
If you miss IVA payments, your IVA extends to make up the arrears.
You can still be made bankrupt
If you fail to maintain the agreed IVA payments, your IVA may be terminated by your IVA provider or your creditors may choose to start bankruptcy proceedings against you. This may leave you in a worse financial position than if you decided upon Bankruptcy over an IVA in the first place, as debt is only written off at the successful completion of the IVA.