Over the last few years, there has been a surge in the number of people finding themselves insolvent
and looking for solutions to help in times of financial difficulty. In the past, the only option really
available would have been bankruptcy; however there are now a number of options available.
Individual Voluntary Arrangements (IVAs) were introduced in 1986 as an alternative to Bankruptcy. The type
of debt that can be included will be any form of unsecured debt, such as credit cards, overdrafts, bank debts
and should be more than £12000. The individual will also need to be insolvent, i.e. in a position whereby their
income does not cover outgoing debt repayments. It is a legally binding contract between debtor and creditor and
usually runs for 5 or so years. The repayments are calculated based on what the individual can reasonably afford
and when the IVA is complete, any outstanding debt is wiped clear.
Bankruptcy may be petitioned by creditors where anything more than £750 is owed, or applied for by the debtor
themselves. In order to file for bankruptcy, an individual will be required to pay upfront fees of around £700.
Depending on their financial situation, they may also be required to pay monies to their creditors to clear some
of the debt and then any remaining debt will be wiped clear.
In an IVA, a homeowner will not be required to sell their home, although some equity may need to be released to
go towards the IVA. Bankruptcy may well require the individual to sell their home.
In an IVA, apart from the details being logged in the Insolvency Register, which is a public document, there is
no need to inform landlords or employers. Bankruptcy, on the other hand may be published in the local newspaper.
Furthermore, some employers or professions will not allow individuals who have been made bankrupt to continue
IVAs are usually in place for 5 years, though as each case is different, this may vary. During this time, an
individual will be required to pay affordable monthly payments. Bankruptcy generally lasts for 12 months, but
in some cases payments can continue for up to 3 years, during which time, no further credit can be obtained.
Both options will be recorded on an individual’s credit record and could have implications on obtaining future
credit. An IVA will be recorded on a record for 6 years, as it will with Bankruptcy. However, as an average IVA
lasts in the region of 5 years, by the time it is complete, there will only be 12 months remaining, whereas
Bankruptcy will often only last a year, leaving a further 5 years before the credit record is cleared.
Which is best?
As with any debt solution, it is vital that advice is sought from reputable companies to assist in making the most