What's the difference between bankruptcy and an IVA?

If you're struggling with unmanageable debts and it seems there's no way out, you might need to consider bankruptcy. Under the right circumstances, bankruptcy could be the best approach.

  • On the plus side, bankruptcy can give you a chance to 'start over', with your debts written off.
  • However, it can also mean your home and other assets are sold off and the proceeds divided among your lenders.

In other words bankruptcy could give you a 'fresh start' with no debts - but no assets either. So for many people, an IVA is a better idea, although it comes with its own drawbacks.

Main differences between bankruptcy and an IVA

Here's a short summary of the main differences between bankruptcy and an IVA. If you'd like more detailed information, just call us.

  IVA Bankruptcy
Duration

Typically lasts five years. Can last six years if you can't release equity.

Typically lasts one year. You might have to make payments for up to three years.
Effect on home

You won't have to sell your home but you may have to release any equity over £5,000, which can be more difficult / expensive, due to your IVA's impact on your credit rating.

Will require you to release any equity over £1,000. You may have to sell your home.
Publicity

Will appear in the Individual Insolvency Register (which is publicly available).

Will be advertised in the London Gazette. Will also be publicly available in the Individual Insolvency Register.
Effect on career

Unlikely to affect your career options unless it's a condition of your employment.

Means you're legally not allowed to do some jobs - like being a local government councillor or a company director. May affect your ability to do other jobs if it's a condition of your employment.

IVA or bankruptcy?

Without expert advice, it's very difficult to know whether an IVA or bankruptcy would be a better option for you.

One thing is certain: entering into either is a serious step and it's vital you explore the alternatives first. To quote The Insolvency Service:

'The principal statutory alternative to an IVA is bankruptcy. Bankruptcy should always be the last resort as the debtor will lose control of their assets and will be subject to bankruptcy restrictions, potentially up to 15 years.'

IVA pros & cons

A look at the pros & cons of entering an IVA.

The pros

  • Writes off unaffordable unsecured debt on successful completion
  • Fixed repayment plan - you'll know how much you're paying each month, and for how long (normally five years)
  • Protects against action from unsecured lenders
  • Can help homeowners avoid repossession

The cons

  • Will affect your credit rating for six years from the date the IVA is accepted.
  • Will normally require homeowners to release equity in the final year of the arrangement. This can be difficult / expensive, due to the IVA's impact on their credit rating.
  • Lasts longer than bankruptcy normally does. Typically 5 years, but can be 6 if equity can't be released.
  • Will leave you with very little money for non-essentials.
  • Cannot go ahead without approval from lenders who account for 75% of the debt in question.
  • Upon completion, all unsecured debt not included in the IVA will remain outstanding.
  • Will appear in the publicly available Individual Insolvency Register.
  • Only available to people who live in England, Wales or Northern Ireland - Scottish residents may qualify for a Trust Deed.

Bankruptcy pros & cons

A look at the pros & cons of entering bankruptcy.

The pros

  • Once your bankruptcy comes to a successful conclusion, any outstanding unsecured debt will be written off
  • You'll be protected against any action by your lenders
  • You could be discharged after a year
  • It could give you a chance to 'start over'

The cons

  • You could lose your assets, including your home
  • Your bankruptcy will be advertised in the London Gazette and will appear in the publicly available Individual Insolvency Register
  • Your bankruptcy will stay on your credit file for six years
  • You may have to make contributions for up to three years
  • Can stop you from doing certain jobs.

If you want to know more, please call 0161 672 8990 today.

Is an IVA right for me?

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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.

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