IVA or Bankruptcy, Question by Question
The differences that actually matter when you are choosing between them.
Is an IVA better than bankruptcy?
Neither is automatically better. An IVA tends to suit people with a regular income and assets to protect, such as a home, who can commit to a few years of payments. Bankruptcy can suit people with little income or few assets who want a quicker, cleaner break. The honest answer is that it depends on your circumstances, which is exactly what free advice will help you weigh up.
What is the main difference between them?
An IVA is an agreement to pay what you can afford over five to six years, after which the rest is written off, and it usually lets you keep your assets. Bankruptcy hands control of your finances to an Official Receiver, can involve selling assets, and is normally over in twelve months. In short, an IVA trades time for protection; bankruptcy trades assets for speed.
Will I lose my home?
This is often the deciding factor. An IVA does not normally force the sale of your home, though you may be asked to release some equity near the end or extend the term by around a year. In bankruptcy, the Official Receiver can claim and sell your share of the home, with up to three years to deal with it, although very low equity may be left alone. For homeowners, an IVA is usually the safer route.
Which is cheaper to set up?
Bankruptcy has an upfront fee of £680, which can be paid in instalments but must be cleared before you apply. An IVA has no upfront fee; the practitioner's costs come out of the monthly payments you make. So an IVA costs nothing to start but more overall across its term, while bankruptcy is a smaller one-off cost up front.
How long does each one last?
Bankruptcy is usually over in twelve months, when you are discharged. An IVA runs much longer, typically five to six years of payments. That said, if you have spare income in bankruptcy you may have to pay into an Income Payments Agreement for up to three years, even after discharge, so the clean break is not always as quick as it first appears.
Does bankruptcy clear debts faster?
Usually, yes. Most qualifying unsecured debts are written off twelve months into bankruptcy, far quicker than an IVA's full term. The trade-off is that bankruptcy is more severe on your assets and carries more restrictions. Some debts survive both routes, including student loans, court fines, child maintenance and debts arising from fraud.
Which is worse for my credit rating?
They are similar. Both appear on the public Individual Insolvency Register and stay on your credit file for six years from the start, so neither is clearly better for credit in the short term. What matters more is rebuilding afterwards, and the fact that lenders can see the debt has been formally dealt with.
Will my job or profession be affected?
Bankruptcy carries more restrictions. While bankrupt you cannot act as a company director or borrow more than £500 without disclosing it, and some regulated professions, such as in finance or law, can be affected. An IVA has fewer formal restrictions, though certain roles and contracts can still be sensitive to either, so it is worth checking your situation before you commit.
How do I decide which is right for me?
Get free, impartial advice first. A free adviser, or a licensed Insolvency Practitioner, will look at your income, your assets and your debts and talk you through which route fits, and whether a cheaper option such as a Debt Relief Order or Debt Management Plan would be better than either. The decision is too important to make from a website alone.
