Is An IVA Or Bankruptcy The Best Debt Solution?

October 13, 2022

If you find yourself in a position where you have debts you are struggling or unable to repay, there are different ways of resolving the problem. Finding the best solution for you will depend on your individual circumstances, so it’s always important to seek some professional advice. 

Two of the most common options are an Individual Voluntary Arrangement (IVA) and bankruptcy, which are ways of legally writing off some or all of your debt. Here’s a look at what these involve, and the pros and cons of each. 

Bankruptcy

If there is little or no prospect of you being able to repay your debt at any point in the foreseeable future, and all or most of your assets have already been sold off, then bankruptcy is a common solution.  For a fee of £680, you can legally have most of your unsecured debts written off, allowing for a fresh start.

However, any debts relating to fines for criminal activity, child maintenance arrears, or TV licensing arrears, will not be included in the bankruptcy. It is also important to consider how a bankruptcy declaration might affect the rest of your life. For example, it will be recorded on your credit file, making it more difficult for you to be approved for loans and mortgages.

If your house or car has not already been sold to repay your debts, you might be required to sell these. The bankruptcy period will last for one year, during which you will not be able to borrow over £500, unless you notify the lender of your circumstances. After this period, your debt will be written off, the bankruptcy will remain on your credit file for 6 years.

If your debt was the result of financial impropriety, the restriction period may be much longer, up to a maximum of 15 years. Certain professions, such as the law, finance and accountancy, company directors, and pub landlords, may have conditions or penalties attached to bankruptcy.

IVAs

IVAs are suitable for those who are able to pay off debts in monthly instalments for a period of five or six years. It is a legal arrangement which needs to be drawn up by an insolvency practitioner, with associated costs. Some practitioners may charge higher fees than others, so it’s important to seek impartial legal advice.

An IVA is recorded on your credit file for six years, so again, it will affect your prospects of securing a good mortgage or loan deal, although it won’t make it impossible. There is no restriction period involved as there is with bankruptcy, but you will be listed on the Insolvency Register during the repayment period, and for 3 months afterwards.

IVAs won’t require you to sell your home, and they are unlikely to affect your employment or business. Therefore, if you have some income and a career or assets that you want to protect, then an IVA may be the best solution for you.

If you would like to talk to IVA mortgage specialists, please get in touch today.

Your home may be repossessed if you do not keep up with your mortgage repayments.

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