Bankruptcy and IVA’s are both forms of insolvency. When making the choice between the two it is important to weigh up the pros and cons of each solution, and also talk to a qualified professional.
Wanting to become debt free? Well both an IVA and Bankruptcy are an option available and are regularly recommend as a solution for more serious debt problems. The only way to know which one is best for you is to compare your own circumstances and any advice you have been given and take it from there. This post looks at the pros and cons of each solution, and provides a link to StepChange Debt Charity should you wish to find out more.
More about Bankruptcy and IVA’s
Typically, going down the Bankruptcy route is the quickest way to become debt free. Under most circumstances a Bankruptcy is discharged after 12 months. Whilst it is possible that you may need to pay money towards your Bankruptcy for a few years after that initial 12 months, typically this ends within three years depending on your own personal circumstances.
An IVA typically lasts between five and six years so is a bit longer than a typical Bankruptcy. Five to six years can seem like a long time, especially when you are living within a tight budget. However the set up of an IVA is easier than Bankruptcy.
A Comparison of the two Debt Solutions
Bankruptcy, the good.
– You do not have to seek creditor approval to go bankrupt.
– You can get Bankruptcy Advice for Free, for example from StepChange Debt Charity.
– You could be discharged from your Bankruptcy after 12 months.
– If your property is in negative equity, you may be able to keep hold of it.
– Bankruptcy is usually the quickest way to become debt free.
Bankruptcy, the bad.
– Your Bankruptcy is recorded publicly on the Insolvency Register and also in the London Gazette. However it is not always recorded in your local news paper.
– Your job may be affected.
– It is possible that you could lose your assets. For example your house.
– Your bank account will be frozen.
– Control of your finances is assigned to the Official Receiver.
IVA’s, the good
– IVA’s are not as strict as opinion suggests. It is possible to have payment breaks and you may be able to make changes to the proposal once initial approval has been obtained. However creditors may still need to approve some of the changes requested.
– There are fees involved with an IVA, however you should not have to pay these up front. Instead they come from the amounts you pay towards your IVA once approval has been obtained.
– Working with a licenced Insolvency Practitioner means you retain a level of control during the initial process.
– You can keep some of your assets. For example property or vehicles.
– You sign up for your plan for between five and six years. After that period has passed you have the comfort of knowing you will be debt free.
IVA’s, the bad
– An IVA can last up to six years. This is three years longer than most Bankruptcies.
– You may be required to release some of the equity from your home six months before the end of your IVA. If that is not possible, the term of the IVA could be extended.
– An IVA is recorded on the Insolvency Register.
Still stuck between the two debt solutions?
Whenever making an important decision such as solving your debt problem, it is important to get the right kind of advice. It might be worth visiting the Get Debt Help Section to find links to organisations you can talk to about your debt worries. They can provide you with a solution for your debt so you can start to sleep better at night. Good luck.