IVA: An alternative to bankruptcy

Dependent on your circumstances, an individual voluntary arrangement (IVA) can be a great alternative to bankruptcy when you are struggling financially. An IVA is a contract between you and your unsecured creditors and it gives you the opportunity to pay back the debt you owe in one single payment which suits you and your financial situation.

Both procedures have their own benefits and drawbacks for you and it is advisable to discuss these options with us at Personal Debt Solutions prior to making any decisions. We can provide you with all the information you require about both procedures and help you to decide the best course of action for your current circumstances.

Bankruptcy

This is a legal status and can be a way of clearing your debts when you cannot afford to pay them. Bankruptcy usually lasts for 12 months and any excess income you have during this time will be used to pay your creditors.

When it comes to your assets, the Official Receiver (OR) or an insolvency practitioner (IP), will only be interested in high value assets such as your house or an expensive car. If you have car worth more than a certain amount, it is likely that they will ask you to sell it and purchase a cheaper, basic model. You may also have to remortgage or sell your house dependent on the amount of equity in it.

Assets such as household contents and the tools of your trade will remain untouched. In the case of your pension, it is likely not to be touched however, you should seek advice if you have a large pension fund or you are likely to benefit from your pension in the next few years.

You can either apply for bankruptcy yourself or one of your creditors may apply to obtain a bankruptcy order if they are owed more than £5000. Once bankruptcy has been applied for, the OR will get in touch with you to obtain details of your debts.

After 12 months, you will usually be discharged from bankruptcy, after this happens your creditors cannot make any further claims against you. However, the bankruptcy will remain on your credit file for the next six years which can make it difficult to obtain credit.

Alongside the selling of your non-essential assets, there can be other consequences of bankruptcy specifically for people who work in certain professions. For example, solicitors or accountants may have their practising certificate revoked and bankrupts are unable to act as the director of a company. In those situations, an IVA may be the better solution to deal with personal debt.

The alternative: IVA

If you wish to explore an IVA as an alternative to bankruptcy, you should get in touch with us and we can help you to put together a proposal to put to your creditors. The terms of this proposal can be flexible to suit you, especially in terms of affordability, but your creditors will expect their prospects of recovering money to be as good or better than they would be in bankruptcy.

Most proposals will also contain sanctions which will come into effect if you do not fulfil your part of the agreement, such as making your repayments in full and on time. The proposal will be voted on by creditors and if 75% of creditors by value vote in favour of the IVA, it will be implemented.

Your creditors can put forward changes to the IVA proposal but they cannot impose them on you as you will be able to decide whether to accept them or not. Your IP will help you put together your proposal to put forward to creditors therefore you should submit your best offer of repayment.

By making a full disclosure of your financial circumstances you are more likely to be accepted so you will be able to avoid bankruptcy and pay off creditors through an IVA.

Benefits

There are many reasons why an IVA may be better for you than bankruptcy including:

• It gives you the option to pay your creditors by making payments which are affordable for you.
• It helps you deal with all your unsecured debt such as credit cards and loans.
• When you are in an IVA, it puts a halt to creditor pressure and legal action from your unsecured creditors whose debts are included in the IVA.
• You will usually be able to keep most of your assets.

Drawbacks

However, IVAs are not a good solution for everyone for a multitude of reasons including:

• An IVA doesn’t include all your debts. Secured debts such as hire purchase agreements and other debts such as student loans and parking fines cannot be included in an IVA, but this is also the same for bankruptcy.
• You are not guaranteed to keep your house, it may still be decided that you should re-mortgage or sell your house to satisfy creditors towards the end of the IVA term.
• The IVA stays on your credit rating for six years, the same as bankruptcy does.

Whether an IVA is a suitable option for you or not is entirely dependent on your financial and personal circumstances, get in touch with on 0800 901 2488 to discuss the best option for you. Our friendly, confidential advisers will be able to put you on the right track for dealing with your personal debts.

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