IVA or Bankruptcy?
IVAs or Individual Voluntary Arrangements were introduced in 2002 as an alternative to bankruptcy. Just like bankruptcy is a form of insolvency, but in many circumstances it has less downside.
Unlike bankruptcy, an IVA is a private arrangement between a debtor and his or her various creditors. It used to be the case that bankruptcies were published in the press, but that no longer happens.
Bankruptcies last for only one year, whist IVAs almost always last for five years. In the case of a bankruptcy repayments can continue for up to three years. Depending on one’s viewpoint, an advantage of bankruptcies over IVAs is that with the former a much smaller proportion of the debt will be repaid.
It is illegal for an undischarged bankrupt to obtain credit for a sum greater than £500. There are not any restrictions on someone with an IVA obtaining credit, but given that their credit rating would show the details of the IVA, it is very unlikely that they would be able to obtain any. Both IVAs and bankruptcy will severely damage credit ratings and will remain recorded on the credit ratings for six years.
A major difference between IVAs and bankruptcy involve the home. A bankrupt is in real danger of losing their home. Under bankruptcy law all the debtor’s assets are transferred to the bankruptcy trustee, and this includes all the equity in the bankrupts home. The trustee can, and in a large proportion of cases does, sell the home in order to gain access to the funds. With an IVA property might be excluded, remortgaging might be ordered if it makes economic sense, the terms of the IVA may be modified to account for the equity owned by the debtor, or restrictions might be places on the sale of the property. In all instances the person making the IVA will not lose their home.
It is not always possible to obtain an IVA. It needs the agreement of the creditors who hold 75% of the total debt. Any creditor who is owed in excess of £750 can obtain a bankruptcy order and once granted the sale of the bankrupts assets will be ordered. Forced sale of assets does not apply in the case of an IVA,
Deciding whether an IVA or bankruptcy is the best solution for an individual is a complex matter that may depend on the fine detail of the individual’s circumstances. For help and advice on insolvency and other matters pertaining to debt, please visit www.gregorypennington.com.