IVA and bankruptcy are two different paths that individuals who are struggling with debt can take to manage their financial situation.
While both options have the potential to provide relief from overwhelming debt, they have significant differences that should be carefully considered before making a decision.
One of the key differences between an Individual Voluntary Arrangement (IVA) and bankruptcy is the way they are structured.
An IVA is a legally binding agreement between an individual and their creditors, in which the individual agrees to make regular payments towards their debts for a set period of time, typically five to six years.
In contrast, bankruptcy is a legal process in which an individual’s assets are sold to pay off their debts, and any remaining debts are usually written off.
This fundamental difference means that an IVA allows individuals to keep their assets, while bankruptcy involves the loss of assets.
Key differences between Bankruptcy or Individual Voluntary Arrangement
Key differences between bankruptcy and an Individual Voluntary Arrangement (IVA) include:
- Eligibility: Anyone can declare bankruptcy, while an IVA is only available to individuals who owe more than £6,000 to two or more creditors.
- Duration: Bankruptcy typically lasts for one year, after which the individual is discharged from their debts. In contrast, an IVA usually lasts for five to six years.
- Credit rating: Both bankruptcy and an IVA can have a negative impact on an individual’s credit rating. However, an IVA is considered less severe than bankruptcy and may not impact credit as severely.
- Assets: In bankruptcy, an individual’s assets may be sold to pay off their debts. In contrast, an IVA allows individuals to keep their assets.
- Debt write-off: In bankruptcy, any remaining debts are usually written off after one year. In an IVA, any remaining debts after the agreed-upon payment period are usually written off.
- Costs: Bankruptcy involves court fees, while an IVA requires payments to an insolvency practitioner who manages the arrangement.
Overall, individuals should carefully consider their financial situation and goals before deciding between bankruptcy or an IVA. Both options have their pros and cons and may impact an individual’s financial situation differently. It’s important to seek professional advice and explore all options before making a decision.
Why choose bankruptcy over an IVA?
Choosing bankruptcy over an IVA may be a suitable option for individuals who are unable to make regular payments towards their debts or have little to no assets to protect. Bankruptcy may also be preferable for those who want a faster resolution to their financial difficulties, as the process typically lasts for one year, after which the individual is discharged from their debts.
In addition, bankruptcy may be less costly than an IVA, as court fees are typically lower than the fees paid to an insolvency practitioner in an IVA.
However, it’s important to note that bankruptcy does have significant consequences, including the potential loss of assets, restrictions on obtaining credit and future employment opportunities, and negative impacts on credit ratings.
Individuals should carefully weigh the advantages and disadvantages of each option and seek professional advice before making a decision.
Why choose an IVA over bankruptcy?
Choosing an IVA over bankruptcy may be a suitable option for individuals who want to protect their assets and have a steady income to make regular payments towards their debts. Unlike bankruptcy, an IVA allows individuals to keep their assets while making affordable payments towards their debts for a set period of time. Additionally, an IVA may have less impact on an individual’s credit rating than bankruptcy, as it is considered less severe.
An IVA also allows for more flexibility than bankruptcy, as it may be possible to renegotiate the terms of the arrangement if circumstances change.
It’s important to note that an IVA is a legally binding agreement and failure to adhere to the agreed-upon terms may result in bankruptcy. Individuals should carefully consider their financial situation and goals, and seek professional advice before making a decision.
Can I declare bankruptcy while in an IVA?
It is possible to declare bankruptcy while in an IVA, but it is a complicated process that should be approached with caution. If an individual is struggling to make the agreed-upon payments in an IVA, bankruptcy may be a way to end the arrangement and discharge their debts.
Declaring bankruptcy while in an IVA may result in the loss of assets that were protected in the IVA, and any outstanding debts may still need to be paid.
It is important to note that declaring bankruptcy while in an IVA may have negative impacts on credit ratings and future financial opportunities. Individuals who are considering declaring bankruptcy while in an IVA should seek professional advice and carefully consider the potential consequences before making a decision.
Will bankruptcy or an IVA affect my job?
Bankruptcy or an Individual Voluntary Arrangement (IVA) may have an impact on certain types of jobs or professions. Some key points to consider include:
- Insolvency Practitioners: If an individual works as an insolvency practitioner or in a related role, they may be prohibited from practicing if they have been declared bankrupt or have been subject to an IVA.
- Financial Sector Jobs: Jobs in the financial sector, such as those in banking or finance, may be affected by bankruptcy or an IVA, as these roles typically require individuals to have good credit ratings and financial stability.
- Directors: If an individual is a director of a company, bankruptcy or an IVA may impact their ability to continue in this role, as they may be disqualified from acting as a director for a period of time.
- Military or Law Enforcement Jobs: Some military or law enforcement jobs may have restrictions on employment for individuals who have been declared bankrupt or have been subject to an IVA.
- Other Jobs: In most cases, bankruptcy or an IVA should not affect an individual’s ability to work in other professions or jobs. However, it’s important to note that some employers may conduct credit checks or background checks that could potentially impact job prospects.
Overall, the impact of bankruptcy or an IVA on an individual’s job may vary depending on the type of job or profession. Individuals should seek professional advice and carefully consider the potential consequences before making a decision.
Read more: Advantages of an Individual Voluntary Arrangement
What do an IVA and bankruptcy have in common?
An Individual Voluntary Arrangement (IVA) and bankruptcy have some similarities in terms of the debt relief options they offer. Some key similarities include:
- Both offer a way for individuals to discharge their debts and start fresh.
- Both may have a negative impact on an individual’s credit rating, making it more difficult to obtain credit in the future.
- Both may have restrictions on obtaining credit and future employment opportunities.
- Both require professional advice from a licensed insolvency practitioner or trustee.
- Both require a financial assessment of an individual’s income, expenses, and assets.
However, it’s important to note that there are significant differences between an IVA and bankruptcy, and the choice between the two should be carefully considered based on an individual’s specific financial circumstances and goals.
Frequently asked questions
The main difference between bankruptcy and IVA is that bankruptcy is a formal legal process that involves surrendering assets and can result in the discharge of most debts within a year. In contrast, an IVA is a voluntary agreement between an individual and their creditors, where they agree to repay a portion of their debts over a period of time, typically five years.
Both bankruptcy and IVA may have a negative impact on an individual's credit rating. Bankruptcy will remain on an individual's credit report for six years from the date of discharge, while an IVA will remain on the credit report for six years from the date it was entered into. However, it's worth noting that some lenders may view an IVA as less severe than bankruptcy.
Yes, individuals can choose between bankruptcy and IVA based on their specific financial circumstances and goals. However, it's important to seek professional advice from a licensed insolvency practitioner or trustee before making a decision. They can provide guidance on the pros and cons of each option and help individuals determine which debt relief solution is best suited for their situation. Difference between Bankruptcy or Individual Voluntary Arrangement
Does bankruptcy or an IVA have a negative impact on an individual's credit rating?
Can an individual choose between bankruptcy and IVA?
Conclusion
In conclusion, bankruptcy and Individual Voluntary Arrangement (IVA) are two options for individuals struggling with overwhelming debt. Both options have similarities and differences that should be carefully considered before making a decision. Bankruptcy is a formal legal process that involves surrendering assets and can result in the discharge of most debts within a year, while an IVA is a voluntary agreement where individuals agree to repay a portion of their debts over a period of time.
While both options may have a negative impact on an individual’s credit rating and employment prospects in certain professions, they can provide a path to financial relief and a fresh start. Seeking professional advice from a licensed insolvency practitioner or trustee is crucial in determining the best solution for one’s specific financial circumstances and goals.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.