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Can an IVA protect me from bankruptcy?

If you're eligible for one, an IVA (Individual Voluntary Arrangement) could help you to avoid bankruptcy.

Why is avoiding bankruptcy so important?

Bankruptcy - though it could clear your unmanageable unsecured debts - is a last resort. Despite giving you a 'fresh start' with your finances after only a year, it has some serious consequences.

'Becoming bankrupt is a very difficult decision and it should only be taken as a last resort.'

The Insolvency Service

For one, it's likely that your home would be repossessed, possibly along with other valuable assets like your car. Bankruptcy stays on your credit record for six years, which would make it more difficult to get further credit during this time. You may not be able to hold certain jobs either.

There's a more detailed analysis of the pros and cons of bankruptcy vs. IVAs on this page.

How can an IVA protect me?

To start off, you're only eligible for an IVA if you are really struggling with your unsecured debts and doubt you'll be able to repay them in full in a realistic amount of time (as with bankruptcy). Unlike with bankruptcy, however, you'd have to be able to commit to lower payments for around five years.

A qualified Insolvency Practitioner will help you to figure out how much you can pay into your IVA by taking your income and all of your other financial commitments into account. This new figure will be proposed to your unsecured lenders, and if enough of them agree, your IVA will go ahead.

If your lenders don't agree, or you can't afford to commit to regular payments, bankruptcy may be the best way forward for you. If your IVA does go ahead, though, while you are making these payments you will be protected against legal action from your unsecured lenders - and interest and charges on your debts will be frozen.

Entering an IVA can also protect you from these aspects of bankruptcy:

  • Repossession. During the final year of your IVA, you might be asked to release equity in your home - but you will not be required to sell it altogether.
  • Publicity. The details of your IVA will be published in the publicly available Individual Insolvency Register, even if it's unlikely that anybody you know would search it for your name. During bankruptcy, your details are also published in newspapers (though not usually ones your family or friends would read, as they are generally read by insolvency professionals and credit reference agencies).
  • Effect on career. An IVA will not force you to step down from your business or prohibit you from holding certain positions. You may not, however, always be accepted in certain employment sectors - such as finance.

After five years (usually), as long as everything in your IVA has gone to plan, any remaining unsecured debt will be written off. Bear in mind that if your IVA fails, you could end up being made bankrupt.

If you'd like to talk to a professional about IVAs or bankruptcy - or you want to apply, click here to contact us.

Remember that both IVAs and bankruptcy will damage your credit rating for six years - though you would almost certainly have damaged your credit rating anyway if you had continued to struggle with your debts, since IVAs and bankruptcy are only an option for people with serious debt problems.

By Matthew Plant.

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Subject to eligibility and acceptance. Fees Payable. Debt write off applies to unsecured debts only and on completion of an IVA, alternative solutions may be offered. If your IVA fails, it could lead to Bankruptcy. Your ability to obtain credit will be affected for at least 6 years. Homeowners may be required to release the equity in their property.