If you are swamped in debt and looking for a way out that will let you get back to living your life, then you may be considering applying for an Individual Voluntary Arrangement (IVA) or filing for bankruptcy. There are a lot of commonalities between these two insolvency solutions. Both are legally binding, and both require the approval of the court.
But there are a number of differences between the two as well, and chances are good that one arrangement is far more suited to your situation than the other. You just need to figure out which it is, which is what we are going to help you do in this article.
Firstly … Bankruptcy Isn’t a Bad Solution
Before we get into the specific differences between an IVA and bankruptcy, there is a matter which needs to be addressed. There is a huge stigma surrounding bankruptcy, and it isn’t deserved. So many people have been taught by the culture to associate bankruptcy with failure. You may dread hearing people whispering about you in hushed tones: “He declared bankruptcy. It’s all over.”
But the only thing that is “all over” when you declare bankruptcy is your debt-ridden past. Bankruptcy is the chance for a new beginning. There is nothing “bad” about it, and it may be exactly what you need to move forward with your life. The remarks of others are unwarranted, and dread of a social stigma is not a good reason to avoid an insolvency solution that could potentially change your life for the better.
Will everyone know? Unless you are talking about it, probably not. As you may know, it used to be common practice for the names of individuals declaring bankruptcy to be published in local newspapers. This is now quite rare. Yes, your name will be published in the Insolvency Register online, but that will happen if you get an IVA too. And no one will know who isn’t actually actively looking for it.
The bottom line is … it really isn’t anyone’s business but yours. It is your life, so you need to do what is smart.
There are a few key questions you need to ask when you are trying to choose between an IVA and bankruptcy:
- Do I own a home?
- Do I own a vehicle or other important assets?
- Do I own my own business?
- Will bankruptcy affect my job?
- Do I have spare income each month to pay back creditors?
If You Own a Home or Other Key Assets …
This is one of the main reasons to choose an IVA instead of bankruptcy. If you own significant equity in your home and declare bankruptcy, you will probably be forced to sell it and vacate. If you do not own significant equity, this is less likely, but still possible.
With an IVA, on the other hand, you may be asked to remortgage when you are about six months out from the end of the IVA. If you can’t afford this, you will be able to skip it, and will instead need to continue making payments to your creditors for an additional 12 months.
So if you own a home and choose bankruptcy, you are taking a risky route and may end up losing it. With the IVA, you don’t need to worry about losing your home.
The same applies if you own a vehicle with a high value. If you declare bankruptcy, you’ll have to sell it to pay off your debts. The exception is if the vehicle has a low value and you can prove it is vital to your existence (your only possible transportation to work). If you can make your case, you may be able to keep it. If you are in any doubt, though, and you want to keep your vehicle, an IVA is a better way to go.
This also applies to any other property you have with significant value. If for example you own valuable estate jewelry or electronics, with bankruptcy, it is likely you will lose it all. With an IVA, you can negotiate to keep these assets out of your agreement. Usually this just means you agree to a longer repayment term on your debts.
If You Own a Business …
This is another situation where you may want to consider an IVA over bankruptcy. Your business will be shut down if you declare bankruptcy, and you will need to start over. Whether this is a big deal or not depends on what you do and what types of assets are associated with your business. If for example you are self-employed as a virtual assistant and work out of your home office, you probably will have no major issues just starting over, and bankruptcy may work fine. If on the other hand you have a lease on a workspace and you have employees working under you, things can get complicated, and an IVA may be better.
Will Bankruptcy or an IVA Affect Your Job?
A lot of people worry that they will lose their job if someone at work finds out they are insolvent. With an IVA, this is very unlikely.
With bankruptcy, it depends on what you do. The majority of occupations should be unaffected, especially if you are upfront about it. There are a few occupations however where you may have a problem. If you are an MP or company director, you may be prohibited from holding your position while bankrupt. There are also other professions where you may not be able to practice while you are bankrupt. Some examples include solicitor, accountant, estate agent, dentist, doctor, and financial advisor. Military personnel and police may also have some concerns, but again, if you are upfront, you may be fine.
Unless you have an occupation like those above where bankruptcy is a major concern, there is no reason to avoid it. If however you do have concerns, you may wish to speak to an experienced debt relief agent for advice. You can also consult with your HR department.
If You Do Not Have a Lot of Spare Income …
If you do not have much in the way of spare income, you may want to consider bankruptcy over an IVA. With an IVA, you will have to make higher payments each month, and in fact with bankruptcy you may not have to make any at all. Bankruptcy does unfortunately carry higher fees, but if you choose an IVA for that reason, it may seem easier now, but you will have a rough five years ahead of you.
So now let’s take a moment to sum it up.
Consider Choosing an IVA When …
- You own a home, vehicle, or other assets you can’t bear to lose.
- You own your own business and the requirement that you start over with a bankruptcy would cost you your livelihood.
- You have a job which you may lose if you declare bankruptcy.
- You have power of attorney or are applying for it.
Consider Choosing Bankruptcy When …
- You have no important assets you are afraid to lose.
- You either work for someone else or you are self-employed with a business that is easy to restart.
- You have a job you are not afraid of losing (most jobs are secure even with bankruptcy).
- You don’t have a lot in the way of spare income, or your situation is highly unstable.
- You want things to be over fast so you can start over as quickly as possible.
Quick Facts About IVAs
- Most IVAs last for five years, but yours may be extended to six if you have a home and cannot remortgage it.
- You will not be required to sell your home. You can stay in it.
- You can negotiate with your creditors to make sure that certain important assets are left out of your agreement.
- Will not impact most careers.
- Does not carry the same social stigma as bankruptcy.
- You will be protected from lenders, who will no longer be dealing with you directly.
- At the end of the IVA, your remaining debts will be reduced or expunged.
Quick Facts About Bankruptcy
- The process is usually completed in just one year, but may sometimes last as long as three.
- If you own equity over £1,000, you will be forced to release most of your assets.
- If you have a vehicle, you will probably lose it.
- You will likely be forced to sell your home.
- Carries more of a social stigma than an IVA.
- Most jobs are safe, but a few are not.
- If you own a business, you will have to start over.
- You will no longer have to deal with your lenders directly.
- After the bankruptcy is complete, your remaining debts will be discharged and you will have a clean slate.
Need Help Choosing Between Bankruptcy and an IVA?
Now you should have a pretty good idea whether a bankruptcy or an IVA would make more sense for your situation. Still, insolvency solutions are complex, and there are a lot of considerations to take into account, and it is smart to get some professional advice before you attempt to move forward. At Carrington Dean, we can go over your financial situation in detail and help you choose the insolvency solution which will let you get on with your life while holding onto your job, your home, and your important assets.