Bankruptcy Vs IVA – A 2023 Comparison of Advantages and Disadvantages

Bankruptcy Vs IVA, whether seeking clarity on these debt solutions or exploring ways to regain financial control, this comparison will be a guide. We’ll break down the advantages and disadvantages of Bankruptcy and IVA, empowering you to make informed decisions when facing financial challenges.

Bankruptcy-Vs-IVA

Bankruptcy Advantages:

Quick Resolution: When comparing Bankruptcy Vs IVA, Bankruptcy can provide a faster path to becoming debt-free. I
Creditor Contact: Your creditors will stop pursuing you for payments once a bankruptcy order has been made against you.
Legal Protection: Bankruptcy provides robust legal protection since once declared bankrupt, creditors are legally prevented from pursuing you for the debts included in the Bankruptcy.
Fresh Start: Bankruptcy, in the comparison of Bankruptcy Vs IVA, provides an opportunity for a clean slate, allowing you to rebuild your financial life free from unmanageable debts.

Bankruptcy Considerations:

Income payment order: If you have a disposable income available, an Income payment order/agreement will be enforced for 36 months.
Assets: Considering Bankruptcy Vs IVA, Bankruptcy often involves the sale of assets, including property, which may be necessary to repay creditors.
Credit file: Your credit file will be affected for 6 years.
Insolvency register: In the Bankruptcy Vs IVA discussion, your information is placed on the Register of Insolvencies, a public register .
Employment: Bankruptcy may affect certain employment,
Credit: You are not allowed to obtain credit of more than £500 without disclosing that you are Bankrupt.

IVA (Individual Voluntary Arrangements) Advantages:

Asset Protection: In the Bankruptcy Vs IVA debate, IVAs stand out for protecting your assets, such as your home and car, from being sold to settle debts.
Creditor contact: When choosing between Bankruptcy Vs IVA, your creditors will no longer be able to contact you to demand payments. This will hugely reduce the stress that comes with being in debt.
Legal Protection: An IVA provides robust legal protection if you IVA application is approved, as your creditors are legally prevented from pursuing you for the debts included in the IVA.
Debt Consolidation: IVAs consolidate multiple debts into one manageable monthly payment, making them a strong contender in the Bankruptcy Vs IVA comparison.

IVA (Individual Voluntary Arrangements) Considerations:

Longer Commitment: IVAs generally require a longer commitment, often spanning five to six years for tenants or six years for homeowners, which is an important consideration in the Bankruptcy Vs IVA decision.
Strict Budgeting: In the context of Bankruptcy Vs IVA, IVAs require adhering to a strict budget, which may limit your financial flexibility.
Credit Impact: While IVAs negatively affect your credit score, the impact is generally less severe compared to Bankruptcy, another factor to weigh in the Bankruptcy Vs IVA choice.
Fees: You will pay fees to the Insolvency Practitioner to administer your IVA, these are agreed at the outset with your creditors and are deducted from your month payment. You will not pay a set-up or application fee, or any other fees in addition to those debited from your agreed monthly payment.

Bankruptcy Vs IVA FAQs:

What is Bankruptcy, and what is an IVA?

Bankruptcy is a legal process in the UK for individuals who cannot repay their debts. It involves declaring insolvency and may require the sale of assets to pay creditors.
An IVA (Individual Voluntary Arrangement) is a formal, legally binding agreement between you and your creditors to make reduced monthly payments over a fixed period.

How does Bankruptcy work in the UK?

Bankruptcy involves declaring insolvency, appointing a Trustee, and potentially selling assets to repay creditors. It typically lasts one year and results in the discharge of most debts.
An income payment order can be in place for three years.

What are the main advantages of Bankruptcy?

Advantages of Bankruptcy include quick resolution, legal protection from creditors, and a fresh start with a clean slate.

What are the main advantages of an IVA?

IVAs offer asset protection, improved communication with creditors, and debt consolidation into manageable monthly payments.

What are the disadvantages of Bankruptcy in the UK?

Disadvantages of Bankruptcy include a negative impact on your credit score, public disclosure, and potential asset liquidation.

What are the disadvantages of an IVA?

Disadvantages of an IVA include a longer commitment, strict budgeting, and an impact on your credit score.

How does the process of declaring Bankruptcy in the UK begin?

The process starts by applying to the court for a bankruptcy order, which involves a fee. An Official Receiver is appointed to handle your case.

What is the process of setting up an IVA?

To set up an IVA, you work with an Insolvency Practitioner to propose an arrangement to your creditors, who must agree to the terms.

Can I keep my assets, such as my home or car, in Bankruptcy and an IVA?

In Bankruptcy, assets may be sold to repay creditors. In an IVA, assets like your home and car are typically protected from being sold.

How long does Bankruptcy usually last in the UK?

Bankruptcy typically lasts one year, after which you are discharged from most debts.

How long does an IVA typically last?

IVAs often last for five to six years, depending on the agreed terms.

What is the impact of Bankruptcy on my credit score?

Bankruptcy has a severe negative effect on your credit score for six years.

How does an IVA affect my credit rating?

An IVA also negatively affects your credit score, although the impact may be less severe than Bankruptcy.

Can I apply for Bankruptcy or an IVA if I have a low income or no income at all?

Yes, you can apply for both Bankruptcy and IVAs regardless of your income level, but eligibility criteria may vary.

Are there any debts that cannot be included in Bankruptcy or an IVA?

Some debts, such as student loans, child maintenance, court-ordered payments, and certain tax debts, are generally not dischargeable in either Bankruptcy or an IVA.

Can I switch from Bankruptcy to an IVA, or vice versa?

It’s possible to switch between Bankruptcy and an IVA, but the process can be complex and may require court approval.

What happens to joint debts in the context of Bankruptcy and IVAs?

Joint debts can become the sole responsibility of the non-bankrupt or non-IVA participant, which may strain relationships.

How do Bankruptcy and IVAs affect my employment or business prospects?

Both Bankruptcy and IVAs may have implications for certain professions and businesses, particularly in finance and director roles.

Can I cancel or reverse Bankruptcy or an IVA once started?

Cancelling or reversing Bankruptcy or an IVA is challenging and may require court intervention. It’s essential to seek professional advice before taking such steps.

Bankruptcy Vs IVA

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Which debt solutions apply to you?

If you are struggling to maintain the repayments to your debts it is important to consider all of the options available.

Below is a list of debt solutions available in England, Wales and Northern Ireland:

Debt Management Plan (DMP) – Information on a debt management plan
Individual Voluntary Arrangement (IVA) – Information on an IVA
Debt Relief Order (DRO) – information on a DRO
Bankruptcy – information on Bankruptcy

Free and impartial money advice is available from the Money Helper, an organisation set up by the Government for people in debt.

All debt solutions should be very carefully considered. Some providers may charge fees if a solution is taken.

Your ability to obtain further credit in the short term will likely be affected, which may also be the case over the medium to long term. Calls from mobile phones and other networks may be charged to our free phone number.

Here are some links to UK debt charities that can provide help and advice on managing debt:

Please carefully read the information on these websites to understand what services they offer and if they would fit your needs. Reaching out for help as soon as you start having difficulties managing your debts is important. These organisations can help you understand your options and work with you to develop a plan to get back on track.