There are several solutions to unsecured debt problems in the UK. Many cases though will come to a point where a decision has to be made between an IVA or bankruptcy.
So what are the points to consider? Is an IVA or a bankruptcy better for the debtor? Well this depends on the debtors circumstances but here are some of the factors that need to de understood and considered.
IVA and bankruptcy timescales differ
An IVA normally lasts for 60 months whereas bankruptcy normally lasts for 12 months. There is a likelihood that payments from a proportion of disposable income for 3 years need to be paid to the Official Receiver as a result of going bankrupt in the UK under a bankruptcy restriction order (BRO) . This BRO will be put in place by the Official Receiver following the bankruptcy order being made by a count or high court judge. So it means that the impact to the debtor in terms of payments from income will last for either 60 months for an IVA or a possible 36 months in bankruptcy.
Position of authority lost / maintained
Bankruptcy has a more far reaching effect on the number of positions of responsibility it can effect. Bankruptcy often leads to a loss of position in many professional or higher positions of both private and public office and also directorship of a company. IVA tends to be more forgiving but importantly doesn't affect the debtors position as a director of a company.
Assets lost / kept
Owning property going into a bankruptcy means that the Official Receiver will own an interest in that property. Where the property has equity that can be realised then there is a likelihood that the property will be sold by the Official Receiver at some point within 3 years of the bankruptcy and the proceeds after costs made available to the creditors.
Owning property going into an IVA still requires an interest in that property to be made available for the creditors but is unlikely to lead to the disposal of the asset.
Public bankruptcy / discreet IVA debt solution
Bankruptcy is a very public matter. Bankruptcy notices are posted in the local newspapers along with the London Gazette. In contrast an IVA is not advertised in the local press. For this reason an IVA is considered as a discreet solution for dealing with unsecured debt issues.
Credit availability
IVA and bankruptcy in the UK both limit the opportunity to get further credit in the short and medium term.
Importantly, if a debtor in the UK decides to go bankrupt then they are legally required to inform potential lenders that they are a bankrupt if applying for more than £500 of credit. There is no legal obligation to inform a potential creditor that you are in an IVA
HP agreements
The vast majority of car leasing and HP agreements have a clause written into the contract that the vehicle must be returned in the event of the debtor entering into bankruptcy. The same is not true for an IVA agreement.
The creditor
Typically, an IVA provides a better return for the creditor than bankruptcy. Whilst both solutions allow a fresh start for the debtor, most creditors will prefer an IVA to bankruptcy as the possibility of some sort of return is higher with the IVA.
Disposable income
Above all, an IVA requires a regular amount of disposable income to be available on a monthly basis. If there is no regular monthly amount of disposable income available and the decision has been narrowed down to an IVA or a bankruptcy then the choice will fall on the side of bankruptcy.
This article provides some insight into the decision between a bankruptcy v. an IVA in the UK. It cannot replace face-to-face advice with a professional. For this reason, do take proper advice from somebody who specialises in the insolvency arena if you are facing issues with your unsecured debts.
Ed Pearson is a Debt Dr. Debt Dr specialise in debt help and advice for individuals and small businesses. Ed can be contacted on 0845 123 4000 or in confidence on 07970 659266.
http://www.debtDr.co.uk 'prescribing life without debt'
This article does not constitute regulated advice. Please remember that any action regarding financial advice should always be taken only after considering the specifics of your own situation.
To find out more about Ed try, http://www.ecademy.com/account.php?id=41788
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